Do you have an urgent need? Maybe your car won’t start, and you are already late for your appointment. Do you need money to fix it ASAP, but your wallet is screaming for mercy? Or is it a medical emergency?
Financial emergencies happen all the time. And when they do, most people turn without an emergency fund turn to a quick loan to save the situation. But the truth is, a payday loan is not your only quick loan option when you need a quick fix.
A payday alternative loan (PAL) is a cheaper alternative to a payday loan. It provides you with a more affordable source of credit to help you avoid the payday loan debt trap. This article will explain what PALs are and how they differ from payday loans.
What Is a Payday Alternative Loan(PAL)?
Payday alternative loans(PALs) are small-dollar loans offered by federal credit unions. The PALs program was created (and is regulated) by the National Credit Union Administration in 2010 as a way to provide a cheaper payday loan alternative to credit union members. To qualify for a PAL, you must be a credit union member for at least a month.
National Credit Union Administration regulates payday alternative loans’ costs and terms, and the interest rates are currently capped at 28%. The lenders are allowed to charge a small processing fee. However, the fee must be reasonable and equal to the actual cost of processing the loan.
The loan amount range from $200 to $2000, and the maximum term is six months. Additionally, you can not receive more than three PAL loans in a span of six months.
There are two types of PAL loans:
- PAL I. To qualify for PAL I, you need to be a credit union member for at least one month. You can borrow money from $200 to $1000, which must be repaid within six months.
- PAL II. The one-month membership does not apply—you qualify as soon as you establish your membership. You can borrow up to $2000, payable within twelve months.
Why Payday Alternative Loans Are Safer?
Typically, credit unions' sole purpose is to help their members develop financially. In this regard, PALs are designed to help the members access a line of credit with low-interest charges and no additional or hidden fees.
This is what makes them better than traditional high-interest, short-term payday loans.
Ideally, payday loan lenders benefit more when the borrowers are unable to on the payday, and the loans are rolled over to the next payday. This way, they charge additional fees making the loan even more expensive.
But even without rolling over, payday loans are typically costly. For example, say a lender charges $15 on a $100 loan that is due in two weeks. Tis means that the cost of the loan is a whopping 391% APR.
Also, payday loans do not help build your credit history, unlike PAL loans, whose reports and repayments are shared with the national credit bureaus to help build your credit score.
Payday Alternative Loans vs. Payday Loans
From the above, it is clear that payday loans and payday alternative loans are like day and night. For example, with PALs, you can access up to $2000, while with payday loans, the maximum is $500 in most cases.
Here are some of the main differences:
|Payday Loans||Payday Alternative Lonas|
|Interest rates||According to a report by theFederal Reserve Bank of St. Louis, the average interest rate of a payday loan is 391%.||The maximum annual interest rate is 28%,|
|Rollover||Can be rolled over multiple times, and charges increase each time.||Are regulated and has a stringent policy on rollover.|
|Processing Fees||High unregulated processing fees. For example, the fees can range from $10 to $30 for every $100 borrowed.||The highest processing fee you’ll pay is $25.|
|Loan Term||Repayment expected within the next two weeks (maximum 1 month)||Repayment timeframe can be from one to 12 months.|
|Eligibility||Anyone with regular income.||Must be a member of a credit union.|
How Can You Get a PAL?
As mentioned above, you need to be a member of a credit union to qualify for a PAL loan. So if you do not join a credit union that offers PAL loans, you are out of luck. I am running a few minutes late; my previous meeting is running over.
Additionally, there is a one-month waiting period before you can qualify for a PAL loan. This means that you can’t join a credit union today and qualify for a loan tomorrow - except for PAL II. For example, if you have a medical emergency, you can’t go out and join a credit union today and expect to qualify for a PAL loan immediately. Instead, you should join a credit union now if you have an emergency in the future.
If you are already a credit union member, you just need to contact your branch to request a PAL loan.
But remember, PAL is also a loan that needs to be paid back. It is, therefore, better to build healthy emergency savings than to rely on a loan.
Other Payday Loan Alternatives
There are several other types of loans that are more manageable than payday loans. They include
Personal loans can be secured or unsecured. You need to have an asset to use as collateral to qualify for a loan for security. Unsecured personal loans do not require collateral.
A personal loan is a great option when you need a big amount of money or need to consolidate your debts. They are typically repayable within 7 years and can be used for anything. Many banks, credit unions, and online lenders offer personal loans to borrowers.
Bad Credit Loans
With a bad credit score, many traditional financial institutions will not qualify you for a loan. Hence a bad credit loan is a great option when you have a not-so-high credit score.
Debt Consolidation Loans
If you have several debts, a debt consolidation loan offers you the option of combining your debts and dealing with only one lender. Combining your debts can easily save you money and time, and you only need to make a single monthly payment to one lender.
Credit Card Cash Advance
Credit card cash advance allows you to access cash from an ATM using your credit card. If needing quick cash, you can use your credit card to withdraw money from an ATM to help save the situation.
Other Credit Union Loan Options
In addition to payday alternative loans online, credit unions offer other types of loans, including:
- Dedicated purpose loans
- Deferred access or credit builder loans
- Credit union personal loans
- A personal line of credit
How much would you like?
PAL Loans offer a great line of credit in an emergency. If you are a member of a credit union, you can easily access a substantial amount of money(up to $2000) within a short time.
If you are not a member of a credit union, you can join one through your local branch. Check with your employer to see if they are members of any credit union.