What is a Payday Alternative Loan (PAL)?
A Payday Alternative Loan (PAL) is a small-dollar loan offered by federally-regulated credit unions under NCUA guidelines, designed to provide a lower-cost borrowing option compared to typical payday loans.
Federally-insured credit unions offer Payday Alternative Loans (PALs) as an NCUA-regulated product for members facing short-term cash needs. These loans are specifically structured to undercut the high fees and interest rates common in the payday lending market.
A PAL typically carries a maximum principal amount of $200 to $1,000, depending on the credit union and member eligibility. Loan terms usually range from one to six months, allowing borrowers time to repay without the immediate pressure of a traditional two-week payday loan cycle. Interest rates are capped by NCUA regulation, generally maxing out at 28 percent annually, with fees limited to a one-time origination charge of no more than $20.
Credit unions issue PALs to creditworthy members and those building or repairing credit. Unlike payday lenders, credit unions assess ability to repay based on income and existing obligations, not just a post-dated check or bank account access. This approach reduces the cycle of debt that can trap borrowers in repeated loans.
PALs work best for members who have a credit union account and steady income but need to bridge a temporary shortfall. If you need access to payday loan alternatives and credit union options, many institutions in the Southern and Central United States offer PALs to qualified members.