Short answer: a payday alternative loan (PAL) is a small loan that federal credit unions may offer to their members as a cheaper option than a payday loan. Under NCUA rules, the APR can be no more than 28%, the application fee no more than $20, and the loan is repaid in installments rather than in one lump sum (NCUA, 12 CFR 701.21).
PALs I and PALs II at a glance
| Rule | PALs I | PALs II |
|---|---|---|
| Loan amount | $200 to $1,000 | Up to $2,000 |
| Term | 1 to 6 months | 1 to 12 months |
| Membership before you can borrow | At least 1 month | No minimum waiting period in the rule |
| Application fee | Only the actual processing cost, $20 at most | Only the actual processing cost, $20 at most |
| Interest rate | 28% APR at most | 28% APR at most |
| How many | No more than 3 PALs in any rolling 6 months, and only one at a time | Same |
| Rollovers | Not allowed | Not allowed |
Source: the NCUA rule (12 CFR 701.21(c)(7)) and the NCUA consumer page (MyCreditUnion.gov). The 28% cap is the federal credit union rate ceiling plus 10 percentage points, so it would change if NCUA changed that ceiling. Credit unions are not required to offer PALs, and each one sets its own approval rules.
What a PAL costs: $500 over 6 months
Assumptions: $500 PAL at the 28% maximum APR, 6 equal monthly payments, $20 application fee.
| Item | Amount |
|---|---|
| Monthly payment | $90.27 |
| Total paid including the fee | $561.62 |
| Total cost (interest plus fee) | $61.62 |
For comparison, a typical payday loan fee of $15 per $100 is $75 for two weeks on $500, an APR of almost 400%, and the full $500 is due at the end (CFPB). Our personal loan vs payday loan guide works through that math, including renewals.
How to get one
- Find a federal credit union you can join, for example through where you live, work or worship. The NCUA has a credit union locator.
- Ask whether it offers PALs I or PALs II, and what it needs to see (usually proof of income).
- For PALs I, plan for at least one month of membership before you can borrow.
- Compare the APR and the total of payments in the disclosure before you sign, as with any loan.
State chartered credit unions are not covered by this federal rule, though many offer their own small loans. If a credit union loan is not an option, see our guide to loans with bad credit and no cosigner.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.