Payday Alternative Loans – All You Need to Know

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Len Penzo
Payday Alternative Loans – All You Need to Know

While payday loans are easy to get, they have higher interest rates and shorter repayment terms. If you’re already in debt and aren’t sure if you can make the payment on time, choosing a payday alternative loan might be the right choice. You’ll get an affordable rate and flexible terms, but the availability is rather limited and the eligibility criteria vary as well.

Keep reading to uncover the best payday alternative loan options.

What Is A Payday Alternative Loan?

A payday alternative loan (PAL) is a loan type regulated by the National Credit Union Administration (NCUA). This is a totally different type of loan solution and was started in 2010. Most of these loans are restricted to credit unions that are non-profit organizations, and you’ll generally find a lower interest rate when compared to a personal loan or a payday loan.

As such, NCUA-owned credit unions will provide PALs with significantly lower interest rates than most bad credit loans. They also have shorter terms than conventional personal loans or payday loans. According to the policies set by NCUA, all of the payday loan alternative options must meet the following criteria:

  • The amounts approved must be between $200 to $1000.
  • The maximum interest rate on these loans can’t exceed 28%.
  • Only borrowers who are members of any credit union for at least 1 month are eligible.
  • The repayment term must be between 30 to 180 days.
  • In order to recoup the costs associated with the processing of the application, the Federal credit union can request an approval fee of up to $20 and nothing more.
  • Only three payday alternative loans can be approved for a borrower within a span of 6 months.
  • A payday alternative loan can’t overlap another similar loan.

Payday Alternative Loans Vs. Payday Loans

There are several notable distinctions between payday alternative loans and payday loans, beginning with the authorized lender. You can get a payday loan from any lender but you can only get a payday alternative loan if you’re a member of a credit union.

A payday loan charges extraordinarily high APR rates that can reach as high as 400%. On the other hand, a payday alternative loan’s interest may not exceed 28%. Other than these attributes, you’ll also notice a substantial difference in the cost of the loan (processing fees and such). Payday loan charges are at the discretion of the lender, but as per preset criteria, the total charge in a PAL can’t exceed $20.

Here are some of the other key differences:

Loan Amounts, Fees, and Terms

Payday loans offer lower amounts, usually between $100 to $500. However, you can get a slightly higher amount with payday alternative loans, usually between $200 to $1000.

The fees involved such as origination fees, processing fees, and other fees vary. For instance, in the case of payday loans, the average fee ranges between $10 to $30 per week for every $100 borrowed. However, a credit union can’t charge you more than $20 as fees in the case of obtaining a PAL.

The repayment terms on PALs are more flexible than those of payday loans. Most payday lenders offer you a repayment term of 15 to 30 days. By contrast, the repayment terms on PALs range between 30 to 180 days. Furthermore, the interest rates on a payday loan can go as high as 400%, but credit unions offering PALs can only charge a maximum of 28%.

Loan Qualifications

To qualify for a payday alternative loan, you need to be a member of a credit union for at least one month. Additionally, you might also need to submit financial details as well as disclose the purpose of the loan. We recommend checking the available payday alternative loans online to better understand the eligibility criteria of the union that you’re a member of.

You don’t need a great credit score as lenders are more concerned about your income and repayment capacity. Instead, if you make timely payments on a PAL, you can actually improve your credit score. On the other hand, the application process and the eligibility criteria are rather straightforward for a payday loan given the low barriers. All you need is proof of a stable income and a checking account.


Ideally, payday loans allow you to stretch the repayment term. It does add up excess interest on the outstanding amount, yet it’s an available option. However, a PAL doesn’t allow rollover. You must pay what you owe as per the original terms outlined.

If you’re struggling with finances, it’s a good idea to check your eligibility for a credit builder loan instead.


A payday alternative loan is a great choice but it’s not available for everyone. If you’re a member of any credit union and in dire need of money, this quick loan option can help you cover the expenses at affordable interest rates and flexible terms without the high costs and interest rates of a traditional payday loan.