When you need money to make up the shortfall on short notice, federal credit unions may provide a short-term loan known as a payday alternative loan as an economical alternative to pricey payday loans.

NCUA is in charge of establishing criteria for PALs, including how much they cost and the terms they have. For the time being, the maximum permissible interest rate is set at 28 percent. Credit unions are permitted to collect application fees; however, these fees are required to be of a fair level and should only cover the costs of completing the loan. There are two distinct varieties of PALs, each having a set of words and requirements that is marginally distinct from the other. The following is essential information for each option:

PAL I

The maximum loan you can borrow is $1,000, and the length of time you have to pay it back is anything from one month to six months. To be eligible for a loan, prospective borrowers must have been members of the credit union for a minimum of one month before submitting their loan application.

PAL II

Loan sums as high as $2,000 may be obtained, and loan periods can run anywhere from one to twelve months. Because the one-month membership restriction does not apply in this situation, you may be eligible for a PAL II as soon as you become a credit union member.

When Compared to a Payday Loan, How Does an Alternative Loan Stack Up?

One of most costly methods to obtain money is using a payday loan. Payday lending partners normally charge a fixed cost for every $100 borrowed; for instance, $15 would be charged for a loan with a period of two weeks. Although this may not seem much initially, it is comparable to roughly a 400% annual percentage rate (APR).

Payday loans are notorious for their high-interest rates and inconvenience. You will be required to repay your payday loan by the time you get your next salary, which might be difficult if you also have to take care of other responsibilities. If you cannot repay the loan, you may be able to have it extended; however, you will most likely be required to pay an additional cost to do so. The accumulation of fees may put a person in a debt cycle from which it isn't easy to emerge unscathed. In contrast, alternative loans to payday loans have a lower interest rate. They may provide a longer payback period, which makes it easier to keep up with payments on outstanding debt.

How to Qualify

You need to be a member of a credit union that provides loans of this kind to be eligible for an alternative to payday loans. The requirements for joining a credit union might vary, but in most cases, you must be a resident of the area, employed there, or be a student to qualify. You could be eligible to join a credit union that serves people in the teaching profession or serves people in the armed forces. To be eligible for membership in many credit unions, all that is required is a contribution to a nonprofit organization. On the website MyCreditUnion.gov, you may do a search for credit unions in your area to find out what kinds of loans could be offered.

Paycheck stubs could be required as part of the PAL application at certain credit unions. This is one of the requirements for the program. One of the primary criteria that the lending partner will use to evaluate whether or not you qualify for the loan and how much money you are allowed to borrow is whether or not you have a steady income sufficient to repay the debt. A minimum credit score is not necessary when it comes to loans as an alternative to payday advances.

Why Payday Alternative Loans Are Safer

The purpose of credit unions is to assist its members in achieving greater financial stability, and PALs are designed to assist borrowers in making on-time payments while providing them with low-interest rates and no additional costs.

This is a striking difference compared to conventional high-interest, short-term payday loans. Loan companies that provide payday advances generate revenue when borrowers who cannot repay the loans roll them over and pay extra "fees," which is their word for interest.

The cost for a payday loan might be anywhere from $10 to $30 for every $100 that is borrowed, and repayment is normally expected within 14 days. The annual percentage rate (APR) for a loan of $100 for two weeks that costs $15 in interest is 391%.

In contrast to credit unions, which are encouraged to record PAL repayments, payday lenders often only disclose payments to the national credit agencies once the borrower has defaulted on the loan. Building your credit might be aided by a history of making payments on time.