Payday Alternative Loans: How Credit Union PALs Work
A PAL is the cheapest small loan most people can get: 28% APR, a $20 fee, no rollovers. The trade is a credit union membership and a bit of patience. Here's the whole rulebook.
Short answer: a payday alternative loan (PAL) is a small loan from a federal credit union under NCUA rules: $200 to $1,000 for PAL I, up to $2,000 for PAL II, 1 to 12 months, APR capped at 28% plus an application fee of no more than $20. You need to be a member, and each credit union sets its own funding time.
PAL I and PAL II: The Rules Side by Side
Payday alternative loans exist because the National Credit Union Administration (NCUA), the federal regulator for credit unions, wrote a rule in 2010 letting federal credit unions charge 1,000 basis points above the usual 18% ceiling on small loans with strict guardrails. That's the 28%. A second version, PAL II, arrived in 2019 with bigger amounts and longer terms. The table is the rule, 12 CFR 701.21(c)(7).
| Rule | PAL I | PAL II |
|---|---|---|
| Amount | $200 to $1,000 | Up to $2,000, no minimum |
| Term | 1 to 6 months | 1 to 12 months |
| Membership before applying | At least 1 month | No waiting period |
| APR cap | 28% | 28% |
| Application fee | Up to $20, reflecting actual cost | Up to $20, reflecting actual cost |
| Loans at once | One; no more than three in any rolling six months | One PAL of either type at a time |
| Rollovers | Not allowed | Not allowed |
| Repayment | Equal installments, fully amortized | Equal installments, fully amortized |
Two things the table doesn't say. First, only federal credit unions are covered by the rule; a state-chartered credit union may offer a look-alike under state law with its own caps. Second, offering PALs is optional, and plenty of credit unions don't, so you ask by name.
What a Payday Alternative Loan Costs
At 28% APR on an amortizing schedule the interest is modest, and on small loans the $20 fee is the bigger share. Under Regulation Z an application fee charged to every applicant sits outside the finance charge, so the disclosed APR stays 28% and you add the $20 yourself. Three PALs and two payday-style advances, side by side:
| Loan | Term | Interest or fee | Total cost | APR |
|---|---|---|---|---|
| PAL, $500 | 6 monthly payments of about $90 | $41.62 interest plus $20 fee | $61.62 | 28% |
| PAL, $1,000 | 12 monthly payments of about $97 | $158.06 interest plus $20 fee | $178.06 | 28% |
| PAL II, $2,000 | 12 monthly payments of about $193 | $316.12 interest plus $20 fee | $336.12 | 28% |
| Payday advance, $500, Florida rule | 14 days | $55 flat fee | $55 | 287% |
| Payday advance, $500, no-cap state at $15 per $100 | 14 days | $75 flat fee | $75 | 391% |
Read the $500 rows together. The payday fee is smaller in dollars, $55 to $75 against $62, and it buys two weeks. The PAL buys six months. If the payday loan needs even one rollover it costs $110 to $150 and the PAL is already cheaper. The payday APR arithmetic is 75 / 500 x 365 / 14 = 3.91, or 391%. The cash advance calculator lets you compare any two.
How to Get a Payday Alternative Loan
- Find a federal credit union you can join. Membership runs through where you live, work, worship or belong; the NCUA credit union locator shows the ones near you.
- Join. That usually means opening a share account with a small opening deposit set by the credit union.
- Ask for a PAL by name. Not every credit union offers them, and the ones that do may call them something else on the website.
- Show income. Pay stubs or deposit history. Some credit unions pull credit, some don't; ask which.
- Sign and receive the funds in your credit union account. Payments come out on a monthly schedule; there's no balloon and no rollover.
Who a PAL Fits, and Who It Does Not
It fits anyone who can wait a few days, needs $200 or more (or any amount under PAL II) and would rather pay $62 over six months than $75 over two weeks. It especially fits people already caught in a payday cycle, because it's built to end one.
It doesn't fit tonight. If the tow truck is waiting and you're not a member of anything, an instant cash advance funds tomorrow morning and a PAL doesn't. It also doesn't fit a credit union that doesn't offer them, which is a real limit; ask before you join. And it doesn't fit amounts over $2,000, where a regular personal loan or an installment loan takes over.
Other Alternatives to a Payday Loan
A PAL is the best-known payday alternative, not the only one. In roughly the time it takes to join a credit union, you can also try:
- An employer paycheck advance, often at no charge
- A payment plan from the biller: utilities, hospitals and phone carriers all run them
- 211 for local emergency assistance with rent, utilities and food
- A small installment loan at 36% or less in the states that cap rates there
And if none of those works and the shortfall is real, a payday-style advance with the fee shown on the screen is a legitimate tool. Check the cash advance rules for your state before you request one; the caps, terms and databases differ by state, and every page cites the statute.
Frequently Asked Questions
Do I need good credit for a payday alternative loan?
Not necessarily. NCUA rules don't set a credit score requirement, and many credit unions designed PALs for members who would otherwise use a payday lender. Each credit union sets its own underwriting: some pull credit, some look only at income and account history, some require a short membership period. Ask before you apply. An unpaid loan at that same credit union will usually rule you out.
How long does a payday alternative loan take to fund?
Longer than an online cash advance, usually. You need to be a member first, which means opening a share account with a small deposit, and then the loan itself is underwritten by a person or a system depending on the credit union. Some fund the same day for existing members; new members should plan on days rather than minutes. Funds land in your credit union account, so they are available as soon as the loan is approved.
Can I get a PAL from any credit union?
No. PALs are defined by NCUA rules that apply to federal credit unions, and offering them is optional, so not every federal credit union does. State-chartered credit unions may offer similar small loans under state law with different caps. The NCUA locator shows federal credit unions near you; call and ask for a payday alternative loan by name. If they don't offer one, ask about their small-dollar loan instead.
What is the difference between PAL I and PAL II?
Size, term and waiting period. PAL I runs $200 to $1,000 over 1 to 6 months and requires at least one month of membership. PAL II runs up to $2,000 with no minimum amount, over 1 to 12 months, with no membership waiting period. Both cap APR at 28% and the application fee at $20, and both ban rollovers. A credit union can offer either, both or neither.
Can I have more than one payday alternative loan at a time?
No. The NCUA rule allows one PAL at a time per borrower, of either type, and PAL I is also capped at three loans in any rolling six-month period. That's by design: the product exists to replace a cycle of payday loans, not to become one. If a single PAL isn't enough, ask the credit union about a larger PAL II or a regular personal loan rather than stacking.
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