If you find yourself in a financial bind, a payday loan may help cover expenses. Unfortunately, they come with high-interest and fees that could add up quickly.
Federal credit unions offer payday alternative loans (PALs) to members as a more cost-effective solution than traditional payday loans. These loans can help borrowers escape the debt trap created by high-cost for-profit lenders.
Payday Alternative Loans (PALs)
Credit unions offer payday alternative loans (PALs) to help consumers avoid the high cost of payday loans. These PALs have maximum interest caps and other features designed to protect borrowers from predatory lenders.
Pay-As-You-Go (PALs) can be a helpful solution for borrowers facing unexpected expenses such as medical bills or car repairs. However, they are not the perfect solution for everyone.
To avoid financial crisis, the best course of action is to start saving money and building an emergency fund before one occurs. Otherwise, you could find yourself dependent on payday loans to cover these unexpected costs.
The National Credit Union Administration created Personal Advance Loans (PALs) as a way for members to get small loans without the high interest rates and speedy repayment requirements of payday loans. At present, PALs can be issued in amounts between $200 and $1,000 with maximum interest rates not exceeding 28% and application fees not exceeding $20.
Requirements for PALs
If you need money quickly, credit union payday loans could be the ideal solution. These loans are regulated by NCUA (National Credit Union Administration) and offer an alternative to payday lenders.
PAL I: Loan amounts and interest rates cannot exceed 28%, while the application fee cannot exceed $20. Loans range from $200 to $1,000 with repayment terms varying between one to six months depending on the credit union.
Some credit unions offer a more sophisticated version of these loans, known as PAL II. PAL II loans feature lower interest rates than traditional PALs and don’t require membership for a month before you can apply.
Fees for PALs
Credit union payday loans often come with fees that are lower than those charged by traditional payday lenders, usually per-dollar. You may even be charged multiple times for certain loan activities like rollovers, add-ons or renewals.
Before taking out a credit union payday loan, be sure to read through its terms and conditions carefully. These could include late or returned check fees, rolled over loans, as well as interest rates.
Credit union payday loans can help you escape the debt trap created by high-cost, short-term lenders. Furthermore, these loans may build your credit so you may qualify for future more affordable loans with lower interest rates.
When asked which characteristics of a credit union payday loan were most appealing, borrowers preferred products with longer terms and higher loan amounts. Conversely, those with more restrictive features like restrictions on rollovers or shorter operating hours were not as popular.
Repayment options for PALs
If you’ve been struggling with payday loans for some time and feel like they’re starting to have an impact on your financial situation, it may be time to explore other options. An alternative payday loan can help break the cycle of debt accumulation while saving money in the long run.
Payday alternative loans (PALs) are small unsecured loans offered exclusively by federal credit unions. These loans offer borrowers lower costs and extended repayment terms than traditional payday loans.
Pals are available up to $1,000 and can be repaid in installments over one to six months. Furthermore, PALs feature an annual percentage rate cap of 28% which limits the amount of interest you’ll pay.
Payday loans (PALs) don’t get reported to the national credit bureaus like traditional payday loans, so they won’t affect your credit score. With responsible use, however, PALs can improve your credit history and allow for other forms of financing down the line.