With APRs capped at 28%, these low-cost loans can lift you out of a cycle of debt.
Repeat payday loan borrowers may want to look into a payday alternative loan. PALs are a type of lending product offered by select federal credit unions to help members borrow small amounts of money without the high fees of a traditional payday loan.
What is a PAL
A payday alternative loan is an inexpensive short-term loan that’s regulated by the National Credit Union Administration (NCUA). Depending on the credit union you borrow from, the PAL can be like your typical payday loan that requires a one-time repayment or an installment loan, which allows you to repay over multiple repayments.
The NCUA sets limits on how much you can borrow, how long you have to pay it off and fees associated with your loan.
- Loan amount: $200 to $1,000
- Loan term: One to six months
- Fees: Up to $20 and no more than the cost of processing the loan
- APR: Up to 28%
- Rollovers: You can’t roll over your PAL or take out a new one until you’ve paid off your first loan.
- Borrowing limits: You can take out up to three PALs over six months.
Do I qualify for a PAL?
You must be a member of a federal credit union for at least one month to be eligible for a PAL. You generally don’t need to have good credit to qualify. But you’ll often need to prove regular income and your ability to repay the loan on time.
Membership eligibility differs by credit union but could depend on where you live, where you work, your type of job or whether you’re related to a member. Some also allow you to join if you donate to a charitable organization.
The membership process typically involves filling out a quick application and opening a savings account.
Where can I get a PAL?
PALs are available at federal credit unions only. But not every federal credit union offers PALs.
Each credit union imposes its own PAL loan limits and costs, often limiting these loans to specific groups.
University of Virginia Community Credit Union
UVA Community Credit Union is open to anyone who works, lives or goes to school in or around Charlottesville, Virginia. You can also become a member if your spouse, children, siblings, grandparents or grandchildren are members.
Its PALs are smaller but less expensive than the legal limit. And you’ll need to join the credit union at least six months prior to applying for your PAL.
To help you save, 5% of the money you put toward the loan is deposited into the savings account you open when you join.
- Loan amount: Up to $500
- Loan term: Up to 30 days
- APR: 18%
- Fees: None
- Eligibility: Open to members of at least six months who sign up for direct deposit
GHS Federal Credit Union
Open to residents of Broome, Chenango and Tioga counties in New York and their family members, GHS offers a wider range of payday and installment loan alternatives. Its loans come with an application fee and interest that are right on par with the legal limits. You won’t be able to borrow more than 20% of your net worth, however, and you have to provide at least two recent pay stubs to get approved.
- Loan amount: $200 to $1,000
- Loan term: One to six months
- APR: 28%
- Fees: $20 application fee
- Eligibility: Open to members of at least 30 days who prove their ability to repay
Technicolor Federal Credit Union (TFCU)
TFCU is a Southern California–based credit union open to employees of a wide range of companies and unions in the area and their family. TFCU offers a limited range of loan amounts with interest and an application fee. Prepare to present two recent pay stubs when you apply.
You can knock 10% off your interest rate with direct deposit and autopay.
- Loan amount: $250 to $500
- Loan term: One to six months
- APR: 28%
- Fees: $20 application fee
- Eligibility: Open to members of at least 30 days
Benefits of a PAL over a payday loan
- Relatively low interest. The maximum APR an FCU can charge on a PAL is 28% — well below the typical triple-digit APR you get with a payday loan.
- Limited fees. FCUs can’t charge more $20 or the cost of processing your application and disbursing your funds.
- No credit score requirements. You typically don’t need to have good credit — or a credit score at all — to qualify for a PAL.
- Clear rates and terms. Because PALs are regulated, what you see is what you get.
- Avoid the cycle of debt. You aren’t allowed to renew your PAL or take out another one until you’ve paid off the first, helping you to avoid getting caught in spiraling debt that can come with traditional short-term loans.
Where PALs fall short
- Hard to find. Not all FCUs offer PALs, and you might not be eligible to join the few that do.
- Not best for emergencies. Most credit unions require at least a month of membership before you’re eligible for a PAL.
- You typically need a job. Many FCUs require borrowers to submit at least two recent pay stubs or their equivalent to prove you have enough an income to support paying off your PAL.
Keep an eye out for PALs II
In May 2018, the NCUA proposed to expand the PALs program to include another payday loan alternative it calls PALs II. These loans would expand maximum loan amounts to $2,000 with maximum repayment terms of 12 months and no limit as to how many loans you can take out over a specified time.
Importantly, they wouldn’t require a minimum membership period — meaning you could join the credit union with immediate loan eligibility.
The NCUA is considering another third alternative with a yet more flexible fee structure and features. We’ll update this page as we learn more.
Other payday loan alternatives
While only federal credit unions officially offer PALs, many local credit unions and small banks offer similar payday loan alternatives as perks of membership. Yours might offer a small-dollar savings loan that delivers half of your funds up front and deposits the other half into a savings account, which you can access after you’ve paid off your loan in full.
Depending on where you live, your local government and charities might offer resources for free financial services or help with food and utilities to ease your costs of daily living. If you find yourself relying on payday loans, you might also want to consider signing up for credit counseling.
Find a payday loan alternative that’s right for you.
Installment loans you can apply for today
If you’ve decided to get a short-term loan, consider these installment loan providers that offer loans with longer repayment terms than a typical payday loan.
Bottom line
PALs are a useful low-cost alternative for those who are looking into a payday or other short-term loan through traditional providers. But one-month membership requirements and limited availability might not make it an option for you.
Learn more about what to expect when you need money fast in our guide to short-term loans.
