Guides

Credit union payday alternative loans

Federal credit unions are allowed to offer small loans called Payday Alternative Loans, or PALs. There are two kinds, PALs I and PALs II.^[1] They are set by the National Credit Union Administration's rules, so their fees and terms are capped in ways a payday loan's usually are not.^[2] Not every credit union offers them: ask your local federal credit union.^[3]

What the rules say

These are the limits in the federal regulation as of the date below.^[2] A credit union may offer less than the maximum.

• PAL I: $200 to $1,000, repaid over one to six months. You must have been a member of the credit union for at least one month.^[2]
• PAL II: up to $2,000, repaid over one to twelve months. The rule sets no minimum membership period for PAL II.^[2]
• Application fee: only what it costs to process the application, and never more than $20.^[1][2]
• No rollovers. The loan must be paid down in installments over its term (fully amortized). The credit union may extend the term within the maximum, but only without extra fees or extra credit.^[2]
• Limits on repeat loans: no more than one PAL at a time, and no more than three in any rolling six-month period.^[2]

The interest rate cap

A PAL may carry an interest rate up to 10 percentage points (1,000 basis points) above the general maximum rate the NCUA Board sets for federal credit union loans.^[2] The NCUA Board has kept that general maximum at a temporary 18 percent and extended it to September 10, 2027.^[4] That puts the PAL cap at 28 percent while the 18 percent ceiling lasts; the NCUA's consumer site also describes PALs as 28% APR loans.^[3] If the Board changes the ceiling, the PAL cap moves with it.^[2]

For comparison, the NCUA's consumer site notes that federal credit union loans that are not PALs can have a maximum APR of 18 percent, which may be a better deal than a PAL.^[3]

How to find one

PALs come from federal credit unions, so you need to join one. The NCUA's consumer site suggests contacting your local federal credit union to ask whether it offers them, and notes that many state-chartered credit unions offer similar products.^[3] The NCUA runs a public credit union locator.^[5] We do not name or recommend any lender or credit union.

The same NCUA page warns that a lender calling its product a "payday alternative" is not always a credit union, and its terms may not be good for you.^[3] Check who the lender is.