PAL loans: the 28% APR option most people have never heard of
Federal credit unions can offer small-dollar Payday Alternative Loans with strict limits on rates, fees and rollovers. Here's everything you need to get one.
What is a PAL?
A Payday Alternative Loan is a small installment loan offered by some federal credit unions under rules set by the National Credit Union Administration (NCUA). The rules were designed to give members a safer option than payday loans, with lower rates, longer repayment and no rollovers.
Because PALs are installment loans, you repay them in equal payments over months instead of one lump sum two weeks later. That alone makes them far easier to fit into a budget.
PAL I vs. PAL II
| Feature | 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 borrowing | At least 1 month | No minimum |
| Maximum APR | 28% | 28% |
| Application fee | Up to $20 | Up to $20 |
| Rollovers | Not allowed | Not allowed |
| How many at once | One PAL at a time, and no more than three in a rolling six-month period | |
If you've just joined a credit union and need money now, ask specifically about PAL II. It has no waiting period.
What a PAL actually costs
Here's what PALs cost at the maximum 28% APR, compared with keeping a payday loan going for the same length of time.
| Loan | Monthly payment | Interest | Plus max fee | Total cost |
|---|---|---|---|---|
| $400 PAL over 3 months | $139.60 | $18.81 | $20 | $38.81 |
| $500 PAL over 6 months | $90.27 | $41.62 | $20 | $61.62 |
| $1,000 PAL over 12 months | $96.51 | $158.07 | $20 | $178.07 |
| $2,000 PAL II over 12 months | $193.01 | $316.14 | $20 | $336.14 |
| $500 payday loan, renewed every 2 weeks for 6 months | Lump sum | $75 fee × 13 periods | $975 | |
PAL figures use standard amortization at 28% APR. Many credit unions charge less than the maximum. Payday example assumes a $15 fee per $100.
How to find a credit union that offers PALs
Search the NCUA locator
Use the NCUA credit union locator to find federal credit unions near you.
Check who can join
Membership is often open to people who live, work, worship or study in an area, or who belong to certain employers or groups. Some let almost anyone join through a partner organization.
Ask about small-dollar loans
Not every credit union offers PALs. Call or check the website for "payday alternative loan," "PAL," or "small-dollar loan."
Ask what they check
Credit unions set their own approval rules within NCUA limits. Many consider your income and membership history, not only your score.
How to apply
- Open a membership accountUsually a savings account with a small minimum deposit.
- Have proof of income readyRecent pay stubs or bank statements showing deposits.
- Bring ID and your Social Security numberNeeded to open accounts and apply for credit.
- Review the disclosureCheck the APR, payment amount, due dates and total repayment before signing.
- Set up automatic paymentsSome credit unions offer a small rate discount for autopay.
Tips to get the most from a PAL
- Join before you need it. A month of membership opens PAL I and builds a relationship.
- Borrow only what you need. A smaller loan means smaller payments.
- Choose the shortest term you can afford. Less time means less interest.
- Pay early if you can. Ask whether there are prepayment penalties; there usually aren't.
- Use the relationship. On-time PAL payments can help you qualify for other credit union loans later.
Frequently asked questions
Do all credit unions offer PAL loans?
No. Only federal credit unions can offer PALs under the NCUA rule, and offering them is optional. Some state-chartered credit unions have similar small-dollar loans under their own rules.
Can I get a PAL with bad credit?
Possibly. Credit unions set their own approval standards and often look at income and membership history. Ask what they require.
How fast can I get a PAL?
It depends on the credit union. Some fund the same or next business day once you're a member.
Does a PAL build credit?
Many credit unions report PAL payments to credit bureaus. Ask before you borrow if building credit is a goal.
No credit union nearby?
Request $200 to $5,000 and compare offers from lenders in our network, with APR shown before you accept.
Sources
- NCUA: Payday Alternative Loans final rule
- NCUA: Credit union locator
- MyCreditUnion.gov (NCUA consumer site)
- CFPB: What are the costs and fees for a payday loan?
This article is general education, not financial, legal or tax advice. Rules and rates change; check the source or a qualified professional before making decisions.
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