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What are payday alternative loans?
Payday alternative loans, or PALs, are small loans offered by federal credit unions. PALs cost less than traditional payday loans and have longer repayment periods.
Opting for a payday alternative loan can help borrowers avoid potential cycles of repeat borrowing. Borrowers can have only one PAL at a time, and no more than three in a six-month period.
Federal credit unions can provide two types of payday alternative loans, according to the National Credit Union Administration (NCUA). Here are the guidelines for each.
PALs I
- Amounts between $200 and $1,000.
- Maximum annual percentage rate of 28%, including a maximum application fee of $20.
- Repayment terms of one to six months.
- Borrowers must be credit union members for at least one month to qualify.
PALs II
- Amounts up to $2,000.
- Maximum APR of 28%, including a maximum application fee of $20.
- Repayment terms of one to 12 months.
- Borrowers are eligible as soon as membership is established.
How to qualify for a payday alternative loan
Many credit unions that offer PALs don't require good credit to qualify. They’re more interested in the borrower’s income and ability to repay. The lender may ask you to provide proof of income when you submit an application.
Not all credit unions offer PALs. The best way to find out if your local credit union offers these loans is to visit its website or call.
If you aren’t yet a credit union member, use this tool to find a credit union near you. Contact the credit union to learn about its eligibility requirements.
Credit unions are not-for-profit, member-owned cooperatives that can extend membership based on where you live, your employer, if you serve in the military, a religious organization you belong to or other causes and associations you may be involved in.
There may be a one-time membership fee, which can be as little as $5. You also may need to make an initial deposit to fund your account.
Why PALs are safer than payday loans
Credit unions exist to help members become more financially stable. With lower rates and longer repayment terms than payday loans, PALs are structured to give borrowers affordable monthly payments.
Credit unions may report PAL payments to the major credit bureaus, which means borrowers can build up their credit scores by making on-time payments.
That's a stark contrast with traditional high-cost, short-term payday loans. Payday lenders make money when borrowers can’t repay the loans and have to roll them over and pay additional fees.
Payday loan lenders tend to describe borrowing costs in terms of fees rather than interest. A typical fee for a payday loan is $10 to $30 per $100 borrowed, according to the Consumer Financial Protection Bureau . Borrowers often have about two weeks to repay the entire loan.
If a lender charges $15 for a $100 two-week loan, that’s equivalent to an APR of 391%.
Also, payday lenders do not usually report payments to the credit bureaus unless you default.
Payday alternative loans vs. payday loans
| Payday alternative loans | Payday loans | |
|---|---|---|
| Where offered | Credit unions. | Storefront and online lenders. |
| Loan amounts | Up to $2,000. | $500 or less. |
| Repayment terms | One to 12 months. | Two to four weeks. |
| APR | Up to 28%. | Can be 400% or higher. |
| Borrowing restrictions | No more than three loans in a six-month period. | Varies by state. |
| Reports payments to credit bureaus | Possible. | No. |
A cost-comparison example
Here’s an example of how the costs of a $300 loan could vary if you took out a payday alternative loan vs. a traditional payday loan.
Payday alternative loan: A $300 payday alternative loan with a 28% interest rate over one month would cost $7 in interest.
Payday loan: If a payday loan lender charged a fee of $15 per $100 borrowed over a two-week term, the initial cost of borrowing would be $45. If you couldn’t come up with the money in two weeks, the lender might extend the loan an additional two weeks for an additional $45 fee. This means the total cost of borrowing $300 over one month would be $90. The APR on that loan would be 391%.
Payday alternative loan look-alikes
Official PALs are offered by federal credit unions, but state-chartered credit unions may have similar products.
Federal credit unions may also offer personal loans with amounts and repayment terms similar to PALs but that aren’t official PALs. These credit union personal loans cap APRs at 18% and may have stricter eligibility requirements than payday alternative loans.
Additionally, you may find online lenders that market their loans as alternatives to payday loans but aren’t regulated by the National Credit Union Administration. These loans may have rates or terms that aren’t as consumer friendly.
To be considered affordable, the APR on a personal loan should not exceed 36%.
Additional borrowing options
If you’re in need of a small loan, also consider other alternatives to payday loans.
Small bank loans
Your bank may offer small-dollar loans at affordable rates.
For example, Wells Fargo, U.S. Bank and Bank of America have loans ranging from $100 to $1,000 and charge a small fee to borrow. Repayment is usually due in monthly installments over a term of about three or four months.
To apply, you need to be an existing customer with a checking account.
If you’re not sure whether your bank offers a small-dollar loan, call or check its website to discover what your borrowing options are.
Small online loans
Online lenders also offer small loans, including for borrowers with bad credit (a score below 600). These loans typically start at $1,000 with repayment terms of one year or more.
Interest rates vary based on the lender and your financial standing. You can often pre-qualify with online lenders to check your potential loan amount, rate and repayment term before you submit a formal application.
» MORE: Best personal installment loans
Cash advance apps
Cash advance apps like Dave, EarnIn and Brigit let you borrow up to a few hundred dollars from your next paycheck with little required fees. This type of borrowing may come in handy if you’re in a pinch — but only if you’re able to meet your upcoming financial obligations with a smaller paycheck.
Buy now, pay later
“Buy now, pay later” payment plans are offered by many major retailers and let you split a purchase across several weeks — often as four biweekly payments with no interest. The ease in getting a BNPL plan can lead to overspending, so it’s best to stick with one at a time.
Family loans
A loan from a family member or friend can come with little to no interest and a longer repayment term than a payday loan. Just make sure both parties agree to how the loan will be repaid. Draft up a loan agreement, and sign it to stay accountable to the plan.
Local financial assistance programs
Nonprofit organizations and charity groups may offer resources or financial help to people who are struggling to afford groceries, clothing, transportation, rent, utilities and other household expenses. Dial 2-1-1 or visit www.211.org to get connected to financial assistance programs in your area.
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- 1. Consumer Financial Protection Bureau. What is a payday loan?. Accessed Mar 12, 2026.
