The only disadvantage of Payday Alternative Loans (PALs) is that you must first join a credit union in order to apply for one when you really need it.

For the record, the best way to avoid loans is to begin saving money and building an emergency fund.

However, that is a long-term solution to what is often a very immediate problem. When you have a financial emergency, such as an unexpected medical bill or a car repair, you need a solution that can help you right away.

Payday Alternative Loans, or PALs, can help in this situation. They do necessitate some foresight in order to obtain, but they are an option for people who want to avoid payday loans.

What is a Payday Alternative Loan (PAL)?

So there's a distinction to be made between a regular payday loan alternative and a Payday Alternative Loan (PAL). Take note of how the latter is capitalized and has its own acronym in a very fancy set of parentheses? This is due to the fact that PALs are a specific type of loan product.

PALs are loans made available by credit unions that are members of the National Credit Union Administration (NCUA). By the way, credit unions are non-profit alternatives to traditional for-profit banks. Membership in a credit union is generally determined by factors such as where you live, work, or worship.

Credit unions are able to offer products at a lower cost than for-profit institutions that are concerned with maximizing profit because they are nonprofit institutions designed to serve the interests of their members.

As a result, NCUA-member credit unions have the option of offering PALs with much lower interest rates than other bad credit loans. They, like payday loans, have shorter terms than a traditional personal loan.

What are the terms for a PAL?

All PALs must meet the following criteria, according to NCUA policies:

1. Loan amounts range from $200 to $1,000.

2. For at least one month, the borrower must be a member of the federal credit union.

3. The loan must be for a period of one to six months.

4. The federal credit union may charge an application fee of up to $20 in order to recoup the actual costs of processing the borrower's application.

5. It is not possible to roll over the PAL.

A PAL's maximum interest rate is 28 percent, which is nearly one-fourth the cost of a typical payday loan. Furthermore, the NCUA has proposed some rule changes that would allow credit unions to eliminate the one-month membership requirement, among other things.

A PAL has a maximum interest rate of 28%. When compared to the average APR for a payday loan, which is 391 percent!

Furthermore, credit unions are not permitted to roll over PALs, which means that borrowers are less likely to become trapped in a predatory debt cycle. Rolling over and reborrowing short-term loans is how the average payday loan customer ends up in debt for nearly 200 days per year.

The current NCUA regulatory framework goes even further to protect borrowers from becoming trapped in a debt cycle when they use PALs. Credit unions are not only prohibited from lending more than one PAL to a single borrower at a time, but they are also prohibited from lending more than three PALs to a single borrower in any six-month rolling period.

How can you get a PAL?

In order to apply for a PAL, you must be a member of a specific credit union. So, if you can't find a credit union that also offers PALs, you're out of luck.

Because of the one-month membership requirement, you cannot, for example, go out and join a credit union right now if you need a PAL to pay for a car repair. Instead, before you have an emergency expense, you should go out and join a credit union.

If you already have a credit union membership and want to apply for a PAL, simply call or visit your local branch. While you're at it, see if they provide free financial counseling to their members. Many people do!

Still, it's best to save up so that you don't need a loan in the first place.


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