Wells Fargo Bank has decided with finality to close its line of credit accounts to simplify various product offerings. The revolving credit lines allowed users to borrow $3,000 to $10,000, which they use to consolidate higher-interest credit card debts, home loans, or avoid overdraft fees.
Wells Fargo has shut down a number of services as a result of the pandemic. It ceased the home equity loans in 2020 and would stop providing auto loans to independent dealerships. The bank’s frequently asked questions (FAQ) page showed that the account closures can’t be reviewed or reversed.
“We apologize for the inconvenience this line of credit closure will cause,” the bank said in a six-page letter to customers. “The account closure is final.”
Fortunately, there are other alternatives available for the customers looking for ready cash. They can turn to other lenders offering personal lines of credit or personal installment loans such as home credits.
The bank said, “We realize change can be inconvenient, especially when customer credit may be impacted”. “We are providing a 60-day notice period with a series of reminders before closure. We are committed to help each customer find a credit solution that fits their needs.”
The decision has an impact on customers’ credit scores
The news could affect the credit utilization ratio of customers or the percentage of the total credit they are using. The credit utilization ratio of customers would likely go up when their account is closed. It can negatively impact their credit score, as the total available credit will go down, while the amount of debt will stay the same. Lenders prefer to see a credit utilization ratio of 30% or less.
Rachel Gittleman, financial services and membership outreach manager at Consumer Federation of America said the customers whose lines of credit are being closed need to monitor their credit reports and scores. If the available credit goes down drastically in a short period, it may negatively impact one’s credit score. “Clients who see a drastic change can complain with the Consumer Financial Protection Bureau,” she said.
Consumers who plan to replace the Wells Fargo line of credit with another type of loan should make an educated purchase by inspecting the product fees.
“It’s not just the annual percentage rate (APR), there are monthly or annual fees that will be part of what you’re paying back. As a consumer, you have to make sure you’re able to pay that,” she added.
Wells Fargo will send customers a 60-day notice before the personal line of credit is canceled. Once it closes, the remaining balances will have minimum monthly payments and a fixed interest rate. The minimum payment will be 1% of the remaining balance or $25, whichever, is higher. The bank has yet to make an official announcement about the average fixed interest rate. The variable interest rate ranged from 9.5% to 21%.
“Every consumer is going to have different needs. Make sure it’s something you can afford on a monthly basis on top of your typical expenses.” Gittleman said.
Customers can access other options for cash like personal installment loans and home equity loans
Personal lines of credit are usually used to make big purchases like consolidating debt or making home improvements. The interest rates in personal lines of credit are mostly variable which means they can change after a predetermined period.
If you plan to stay with Wells Fargo, you can choose credit cards or personal loans. You can always choose a personal line of credit from other institutions as there are numerous options.
Credit Cards are also considered the revolving credit line as you can withdraw from a line of credit and make payment for another. You usually carry a lower credit limit with a credit card compared to a line of credit. A credit card can be utilized to make smaller purchases.
A personal loan will be a fixed amount that you can repay with a fixed interest rate and they function similarly to personal lines of credit. Both of them are utilized to make larger purchases and can have a good impact on your credit score if you make timely payments. A personal loan can be a good alternative if you need a fixed amount and are comfortable with a steady repayment schedule.
Many other financial institutions offer personal lines of credit including banks, credit unions, and online lenders. Some of the top competitors are PNC Bank, US Bank, Pentagon Federal Credit Union, and Truist. You can make a smart decision by reading the reviews and ratings of these financial institutions on BankQuality.com.