What is a Payday Alternative Loan (PALs)?

Payday loans are an option for quick cash, but are you ready to pay the following cost? If you do not want to take such a risk, a payday alternative loan can be a better option for you.

Generally, Payday alternative loan have significantly lower fees and interest rates than traditional payday loans. The lower costs can aid you in avoiding an endless cycle of credit card debt.

A few national credit unions provide payday loans. There are two kinds of payday alternative loans – PAL I and PAL II, which the National Credit Union Administration approved. 

I will go over what you need to know regarding both types of payday alternative loans.

Let`s start.

TABLE OF CONTENTS:

1. What is a payday alternative loan?
2. What is a payday loan?
3. Payday alternative loan vs payday loan
4. How to apply for a payday alternative loan
5. Why Payday Alternative Loan (PALs) are safer
6. Alternatives for Payday alternative loan (PALs)

What is a payday alternative loan?

Federal credit unions (FCUs) give people with limited means access to low-cost credit that can be used for productivity and providing goals. The mission of credit unions places FCUs in direct competition with lenders offering short-term, low-dollar loans and other loans to people with little resources.

The National Credit Union Administration (NCUA) establishes guidelines for the terms and costs of PALs.

Types of Payday alternative loan

The FCUs offers two types of payday alternative loan – PALs I and PALs II.

Payday Alternative Loan II (PAL I)

• The maximum interest rate is 28%, and it can not be exceeded.
• Borrowers can have a payday loan up to three times in a period of six months.
• Borrowers can take only one loan at a time.
• Credit unions can charge no more than 20$ for an application fee.
• The loan has a minimum maturity of 1 month and a maximum of 6 months.
• The minimum loan amount is 200$ and the maximum is 1000$.
• Borrowers must be a member of the credit union for at least one month before the loan.

Payday Alternative Loan II (PAL II)

• As it is in PALs I, the maximum interest rate is 28%. 
• A borrower can take one payday loan at a time and no more than three times for six months period.
• As in PAL I, the application fee can not be more than 20$.
• The payday alternative loan can not exceed 2000$ (no minimum).
• The maturity of the loan is between 1 to 12 months.
• Borrowers do not need to be a part of the credit union.

Payday Alternative Loan	INTEREST RATE	LOAN MATURITY	APPLICATION FEE	LOAN AMOUNT	MEMBERSHIP
PAL I	28%	1 to 6 months	No more than 20$	200$ to 1000$	1 month
PAL II	28%	1 to 12 months	No more than 20$	Up to 2000$ (no min)	No need

What is a payday loan?

Usually, a payday loan is a short-term, high-cost loan for $500 or less, generally due on the borrower’s next payday. Payday loans can be obtained by storefront payday lenders or online, depending on state law. The annual percentage of this type of loan can exceed 390% up to 780%.

A “payday loan” typically refers to a small-dollar, short-term loan that can be repaid in several installments, with repayment secured with a pre-or post-dated check or preauthorized electronic transfer (EFT) of the borrower’s bank account.

A payday loan typically expires within 14 days, usually around the time of the borrower’s next “payday” (hence the name). At this point, the borrower will usually be expected to pay the loan in one balloon payment. The borrower does not usually pay any interest on payday loans. Instead, the payday lenders typically charge large “application” fees from $15 to $35 for every 100 dollars borrowed. This pricing structure results in the triple-digit annual percentage rate (APR).

Common characteristics of a payday loan:

• Small amounts loans, and in many states, the size limit is 500$, although this range may vary.
• Usually, the payday loan borrower repaid it in a single payment on the next payday or another income source. Typically, the due date is two or four weeks after the loan was made. Everything is described in the initial agreement.
• Generally, the loan is repaid through a post-dated check, including the loan amount and the fees. Another way is by providing the lender with permission to electronically debit the accounts from your bank, prepaid card account, or credit union. 
• The loan can be provided by bank transfer, cash, or a check. 
• Payday loan lenders charge large “application” fees from $15 to $35 for every 100 dollars borrowed.

Payday alternative loan vs payday loan

There are several main differences between payday alternative loans and payday loans. The list is:

1. Who offers the loan?
2. What are the costs and fees for a payday loan and a Payday alternative loan?
3. What is the loan amount between Payday alternative loan vs. payday loan?
4. Loan qualifications
5. Rollovers between

DIFFERENCES	PAYDAY ALTERNATIVE LOAN	PAYDAY LOAN
OFFERED BY	FCUs (Federal Credit Unions)	For-profit online or storefront lenders
LOAN AMOUNT	200$ to 2000$	100$ to 500$
INTEREST RATE	28%	An annual interest rate of 390 to 780 percent
REPAYMENT TIME	1 – 6 – 12 months	Up to 4 weeks
FEES	No more than 20$	10$ to 30$ for every 100$ loan
LOAN QUALIFICATIONS	PAL I – Credit Union Member for 1 month PAL II – none	Basic requirements: age, active bank account, proof of income
ROLLOVERS	Low Risk	High Risk (leads to more financial debt)

Who offers the loan?

Payday alternative loan is offered only by certain federal credit unions. Those unions are member-owned NGOs (nonprofit organizations) regulated by the federal government. The aim is to provide reasonable rates for the financial products.

Payday loans are offered by lenders who can be a storefront or for-profit online. 

What are the costs and fees for a payday loan and a Payday alternative loan?

Payday alternative loan fees for PALs I and PALs II can not exceed 20$  per loan. This is the application fee of the credit unions to the borrowers.

Payday loan fees differ depending on the state law where the loan is given. The fees are between 10$ and 30$ for every 100$ loan. Most often, the amount of fees is 15$ for every 100$.

What is the loan amount between Payday alternative loan vs. payday loan?

If we are looking at the Payday alternative loans, we will face two different options. PAL I has a minimum loan amount of 200$ and a maximum loan amount of 1000$. PAL II does not have a minimum amount, but the maximum amount is 2000$.

The payday loan has a maximum amount of 500$.

Loan qualifications

Applying for a Payday alternative loan can differ depending on the type. 

Applying for the traditional PAL I, the borrower must be a credit union member for at least one month. In contrast, applying for PAL II can be obtained immediately. The borrower doesn’t need to be a member.

Of course, there are basic financial qualifications that every borrower has to meet. 

Applying for Payday loans is much easier. Typically, the lenders just need an active bank account, age, and some proof of income. But this is where the cornerstone lies. Those lenders do not consider whether you’re financially able to repay the loan. This may lead to rollovers, and you could find yourself in a very bad situation.

It is important to say that payday loans are not available in some states. 

Rollovers payday alternative loan vs. payday loan

If you’re searching for an option that’s less risky for a loan, then a payday alternative loan might be the best solution. Because you’re limited in how much of the loans can take out at once, You’re less likely to end up trapped in a never-ending spiral of financial debt.

In contrast, for payday loans, certain payday lenders offer borrowers the option of renewing or rollover their loans in the event that they are unable to repay the loan on time. But, many states restrict or ban renewals and rollovers.

If the credit is extended or rolled over, instead of being paid in full by the deadline date, then you will be paying fees to extend the due date of your loan. Paying only the fee does not lower the principal amount due.

How to apply for a payday alternative loan?

To get a payday alternative loan (PAL I), you’ll have to be an active federal credit union member (at least 1 month). There are credit unions that you could be eligible to join through the Credit Union Locator.

Credit unions have their own membership rules. They can establish their own rules to determine who is eligible for a payday loan under the NCUA’s rules for regulation.

Explore and browse sites of credit unions to find the specific requirements they have for payday loans. Some credit unions permit members to apply online for these loans.

Why Payday Alternative Loan (PALs) are safer

Due to their low cost, the payday alternative loans are more secure than short-term loans (or payday loans). Instead of paying a fee of between $10 and $15 for every $100 borrowed – which could be equivalent to 30% or higher, you’ll have to pay 28% or less. The cost is kept low to allow you to get the money you need without not having the best credit.

Alternatives for Payday alternative loan (PALs)

If you are not sure about the payday alternative loan, then there are some other options that you could consider.

Payment Plan 

Contact your creditor as quickly as possible if you need cash for medical bills or late payments on something else. Be clear about your situation and honest about the amount you can pay each month. You might also be eligible for a help-for-the-difficulty program when one is available within your locality, or you can try to resolve your debt.

Personal Loans

Personal loans could offer a higher amount of loans than payday alternative loan, and great credit might not be required for approval. LendingPoint, Upgrade, and Upstart are three lenders who can offer personal loans to people with fair or weak credit.

Early payday app

Certain older payday applications, such as Earnin or Dave, allow you to take a small portion of your payment before the payday, without charge. Usually, this amount is between $100-$500. Check with your employer if it collaborates with a business that offers this service. If not, you can find the option that is suitable for you.

Financial assistance

You could be eligible for help through government or local programs in certain situations. This is where the 211 Network can assist you in locating financial assistance programs.

IN CONCLUSION

If you’re looking to take out just a little amount reasonably, then payday alternative loans offered by credit unions could be less expensive than payday advances. Be aware that even if your credit union does not provide PAL II loans, you could have to be an active member of the credit union for at least a month and occasionally longer before you will be considered for a payday loan. As with all loans, ensure that you can repay them within the time frame of the loan before you apply.

Suppose you’re not sure whether an alternative payday loan is a good fit for your budget and needs. In that case, other options like credit-building or credit counseling may assist you in improving your credit score and improve your financial position. Thus you could be qualified for credit cards or loans with lower interest rates shortly.