Credit Union Payday Alternative Loans (PALs): A Cheaper Short-Term Loan
Federal credit unions can offer small loans that do the same job as a payday loan for a fraction of the price. Most people have simply never heard of them.
This guide is general information for borrowers in the U.S., not financial or legal advice. Lending laws differ by state and change over time; check with your state's financial regulator or a nonprofit credit counselor about your situation.
Key points
- Federal credit unions can offer payday alternative loans of up to $2,000.
- The APR is capped at 28%, and the application fee at $20.
- A $500 PAL repaid over three months costs about $24 in interest.
- PAL II loans have no membership waiting period, so new members can apply.
The National Credit Union Administration created payday alternative loans, known as PALs, so federal credit unions could compete with payday lenders on speed without copying their prices. There are two versions, and both are much cheaper than a typical payday loan.
PAL I and PAL II at a glance
| PAL I | PAL II | |
|---|---|---|
| Loan amount | $200 to $1,000 | Up to $2,000 |
| Repayment term | 1 to 6 months | 1 to 12 months |
| Membership before you can apply | At least 1 month | None |
| Maximum APR | 28% | 28% |
| Application fee | Up to $20 | Up to $20 |
The 28% cap is the general federal credit union interest ceiling of 18% plus 10 percentage points. Other rules apply to both versions: you can only have one PAL at a time, no more than three in any six-month period, and the loans must be paid off in installments rather than rolled over for a new fee.
What it costs compared with a payday loan
Take $500 for three months:
| Credit union PAL at 28% APR | Payday loan at $15 per $100, renewed every two weeks | |
|---|---|---|
| Fees and interest | About $24 interest, plus up to $20 to apply | $75 every two weeks, about $450 over three months |
| Pays down the balance? | Yes, every payment | No, unless you pay the full $575 |
That difference is the whole argument. See how payday loans work for the payday side of the math.
How to get one
- Find a credit union you can join. Eligibility can be based on where you live, work, worship or go to school, or on family members who belong. NCUA’s online credit union locator lets you search by area.
- Ask if it offers PALs or another small-dollar loan. Staff may call them something else, such as a “quick loan” or “emergency loan.”
- Bring proof of income and your ID. Some credit unions can decide the same day.
- Set up automatic payments from your account if it helps you stay on schedule; some credit unions offer a better rate if you do.
Helpful step
Join a credit union before you need a loan. Membership usually costs a small deposit, and being a member for even a month or two opens up PAL I loans and other help.
If a PAL isn’t available, some banks offer small loans to existing customers for a flat fee; we compare those and other options here.
Common questions
Do all credit unions offer PALs?
No. Only federal credit unions can offer PALs, and offering them is optional. Many state-chartered credit unions have their own small-dollar loans with similar terms, so ask.
Will a PAL show up on my credit report?
Often, yes. Many credit unions report these loans, so repaying on time can help build your credit, which payday loans usually don't.
Can I get a PAL with bad credit?
Possibly. Credit unions set their own underwriting, but many look at your income and your history with the credit union rather than your score alone.
