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Choosing the Right Credit Option

If you’ve decided to borrow, it’s important to choose the right type of credit. Start by assessing your situation with these 5 questions:

How much do you need?

Make a realistic assessment of how much you’ll need to borrow, including additional expenses like fees, sales tax, and delivery charges. Remember, the less you borrow now, the less you’ll have to repay later.

 Consider the Costs 

It’s important to consider all the costs involved in borrowing ― not just the monthly payment. Learn how to calculate your total cost of borrowing.

Is your need one-time or ongoing?

Determine if you need a lump sum up front, or a source of funds you can access as needed over time.

A loan may be a good option when you have a large, one-time expense

A loan gives you a lump sum to consolidate debt or make a large one-time purchase. Unlike a line of credit, a loan has:

  • A fixed term, so you know exactly when the loan is scheduled to be paid off
  • A fixed rate and monthly payment that stay the same for the length of the loan ― unless it’s a loan with a variable rate like an adjustable-rate mortgage (ARM)

A line of credit may be the answer for funding large, ongoing expenses

Some large expenses are ongoing ― like remodeling your home or covering the costs of a major purchase. A line of credit gives you a reusable source of funds that you can use as needed up to your credit limit. Unlike a loan, a line of credit has:

  • A variable annual percentage rate (APR), which is a rate applied to the total amount of your debt and that can rise or fall based on market conditions
  • An ongoing, revolving term that allows you to use the money up to an agreed credit limit whenever you need it; once you pay down the amount owed, the credit becomes available to draw on again
  • Variable monthly payments based on the amount of the line you’re using

What’s the APR?

When comparing credit accounts, focus on the annual percentage rate (APR) rather than just looking at the interest rate. The APR is the amount of annual interest and may include fees or additional costs you’ll pay averaged over the full term of the loan. Consider the APR when shopping for a loan because it reflects the cost of credit.

 Good Credit Habits 

Your interest rate is partially based on your credit history. The stronger your credit score, the better interest rate you may be able to qualify for. Improve your score with good credit habits.

Do you have assets you can borrow against?

If you have a savings or CD account, or some equity in your home, you might want to consider a secured loan. Because secured credit accounts use your assets as collateral, they may have lower interest rates, higher credit lines, and longer repayment terms. Secured borrowing can be a good option if you want to use the savings or equity you’ve built over time.

 Secured Credit 

Learn more about the secured credit options Wells Fargo offers.

What’s your current financial situation?

Before you apply for credit, it’s always a good idea to assess your current situation:

  • Check your credit score ― the credit options and interest rate you qualify for are based in part on the strength of your credit report.
  • Review your finances to be sure an additional monthly payment won’t strain your budget.
  • Be sure adding another credit account won’t take you out of your debt-to-income (DTI) ratio comfort zone. Learn more about debt-to-income ratios.

Ready to explore your credit options?

Be prepared for your next big financial goal with My Credit Options Guide®. This free educational tool — available to Wells Fargo Online® customers — shows you interest rates, fees, and credit product options that may be available to you based on your inputs.

Create your credit options guide