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Wells Fargo is closing all existing personal lines of credit, CNBC reported Thursday. Some customers are probably thinking: now what?
Fortunately, according to financial experts, there are alternatives for clients looking for cash.
They can turn to other lenders who offer personal lines of credit or installment loans. Homeowners can consider opening a line of credit for home equity, retirees can take out a 401 (k) loan, and those with certain types of life insurance can, for example, get a loan against a policy.
According to experts, each of them has its own advantages and disadvantages.
“Every consumer will have different needs,” said Rachel Gittleman, manager of financial services and member affairs, Consumer Advocacy of America. “Make sure it’s something you can afford on a monthly basis in excess of your typical expenses.”
A personal line of credit is a type of unsecured loan, meaning it is not collateralized. It offers flexibility to borrowers who can borrow money anytime after the line is opened.
According to Greg McBride, chief financial analyst at Bankrate, the amounts are usually small and are often used for unplanned expenses or other quick cash-flow scenarios such as quick capital for commercial ventures.
But banks also sell them in other ways, like home improvement loans, he said.
“For one it’s debt consolidation, for another it’s home improvement, for some it’s a jet ski,” McBride said.
Wells Fargo is closing all personal credit line in the coming weeks and discontinuing product offeringsIt was reported by CNBC on Thursday. Revolving lines of credit typically allow users to borrow between $ 3,000 and $ 100,000.
“We understand that changes can be inconvenient, especially when it could affect customer creditworthiness,” Wells Fargo said in a statement. “We provide a 60-day notice period with a series of pre-closure reminders and are committed to helping each client find a loan solution that suits their needs.”
Wells Fargo customers can open personal lines of credit with other banks, McBride said. Many online lenders offer them and generally have fast turnaround times of 48 hours, he said.
“[Personal lines of credit] have been proposed for a long time, but it has never really been a big deal for the big banks, “McBride said.” And that’s what opened up opportunities for fintech firms or small regional lenders to move into this space. the last 10 years or so. “
Personal loans, another type of unsecured debt, are also possible, he said. They are slightly less flexible than a line of credit, McBride said, as clients borrow all the money up front and pay it off in regular monthly installments over a specified period.
(Wells Fargo continues to offer personal loans and credit cards, according to a company statement.)
Certified Financial Planner Paul Oslander, Director of Financial Planning at the ProVise Management Group in Clearwater, Florida, has clients impacted by the closure of accounts at Wells Fargo.
Auslander suggested that they start new banking relationships (he recommends a public bank) and, if they are homeowners, apply for a line of credit. The process could take about six weeks, he said.
“Rising home prices mean that many homeowners have more shares than they’ve ever seen,” McBride said.
Those who own cash value life insurance as well as a lifetime policy may be able to borrow against the policy if it has accumulated cash value.
“This is the cheapest money available,” Oslender said.
However, this option comes with some caveats and risks. First, the insurance indemnity in the event of death is reduced by the amount of the loan and interest if it is not paid during the life of the owner.
Retirees can also take out a loan from their 401 (k) plan, Auslander said.
Of course, this will reduce the size of their eventual nest egg, diverting money from investments that are likely to grow thanks to the power of compound interest.
But 401 (k) borrowers would essentially pay off with interest. Repayment must occur within five years, but conditions may differ depending on the employer.
According to the American Council of Plan Sponsors, about 83% of plans allow investors to borrow against their own accounts. Almost all 401 (k) plans require a minimum loan amount. According to the Council, roughly 75% set a minimum of $ 1,000.
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Wells Fargo customers whose lines of credit are being closed must keep track of their credit reports and credit ratings, said Gittleman of the Consumer Federation of America. According to her, if the available loan is sharply reduced in a short period of time, it could negatively affect the credit rating.
Clients who see radical changes can file a complaint with the Consumer Financial Protection Bureau, she said.
According to a Wells Fargo spokesperson, the closure of any financial product could affect the credit ratings of clients. The company will inform you that the account is being closed by the bank. Clients must continue to make scheduled payments on time to ensure positive reporting by the credit bureau, the official said.
Consumers looking to replace a Wells Fargo line of credit with a different type of loan must make an informed purchase by checking the value of the product, Gittlman said. Reading customer complaints in CFPB Database can help consumers understand product flaws.
“It’s not just about annual income,” she said. “There are monthly or yearly fees that will be part of what you pay.
“As a consumer, you have to be sure you can pay for it,” she added. “No product is going to be perfect.
“But you are making a more informed decision.”