Education on Personal Loans

Payday alternative loans explained

June 26th, 2023 Jun 26, 2023 • Read time: 5 min


When people need cash fast, they sometimes take out payday loans–short-term loans with sky-high fees and interest rates. There are better options though, such as a payday alternative loan (PAL). This is a small loan offered by some federal credit unions and they cost much less than a payday loan and allow you more time to pay it back. In this article, we will cover the differences between payday loans and PALs, as well as other loan options that may work for you.

What is a Payday Alternative Loan? (PAL)

A payday alternative loan is a loan ranging from around $200 to $1,000. This loan helps people who need quick cash to pay for unexpected expenses, such as a home repair or a medical emergency. PALs are regulated by the National Credit Union Administration, and there are two types of PAL loans–PAL I and PAL II. To help protect borrowers from the dangers of payday loans, PAL I loans are:

  • To be repaid in full after one to six months of payments.
  • Much more affordable than payday loans. There is a maximum APR percentage that can’t be exceeded for a payday alternative loan. And application fees are capped at $20.
  • Given to borrowers one at a time. A borrower may not take out more than three PALs in a six-month period.
  • Available only to those who have been a member of a credit union for at least one month.

A second payday alternative loan option was rolled out in 2019. The PALs II rules are very similar to PALs, but with larger loan amounts (up to $2,000), longer terms (up to 12 months), and no waiting a month as a credit union member; you can borrow as soon as you become a member.

Difference Between Payday Loan & Payday Alternative Loan

The basic idea behind a payday loan and a payday alternative loan is the same–borrowing a small amount of cash quickly and paying it back over a short period of time. But there are some big differences between these two loans. It is important to understand these differences, because they can save you a lot of money and help you avoid future financial problems.

When it comes to loan amount, a payday lender will typically provide up to $500; but you can borrow up to $2,000 with a PAL. A payday loan must generally be paid off within two weeks; a PAL gives you up to a year. The biggest difference between a payday loan and a PAL, however, is the Annual Percentage Rate (APR), which is the combined total of the interest rate plus the origination fee of a loan, calculated on a yearly basis and represented by a percentage.

According to the Consumer Financial Protection Bureau, the typical fee for a payday loan is between $10 and $30 for every $100 borrowed. For example, if you were to borrow $500 on a payback loan, you could be charged up to $150. That means when you pay back the loan, you’re now repaying $650.

If you were in this situation, where you needed to borrow $500 quickly for an emergency, imagine how hard it would be to pay $650 back in two weeks. And that doesn’t even include all the extra fees you’d have added on top of the loan if you were unable to pay the $650 back on time. Not to mention all your other regular bills and expenses you’re expected to pay each month. But with a payday alternative loan, you can gradually pay back the loan over a period of six months to a year.

What are the Terms of a Payday Alternative Loan?

We already mentioned many of the terms for PAL and PAL II loans. Below is a brief summary of those terms.


  • Loan amount: $200 to $1,000
  • Loan term: 1 to 6 months
  • Fees: Maximum $20 application fee
  • Wait period: At least one month as member of a credit union


  • Loan amount: Up to $2,000
  • Loan term: 1 to 12 months
  • Fees: Maximum $20 application fee
  • Wait period: None

Qualifications for a Payday Alternative Loan

To qualify for a payday alternative loan, you have to be a member of a credit union that offers this type of loan. Membership requirements for a credit union may be different, so contact credit unions near you to see what they require from members. These requirements might include living in a particular area, working for a certain company or industry, or belonging to a certain religious group. Other credit unions might only ask that you deposit a small amount of money into an account or make a donation to a specific charity. There is no minimum credit score needed to qualify for a PAL, but a credit union may ask to see pay stubs as part of the loan application.

Payday Alternative Loans Aren’t the Only Alternatives

If you need to borrow money, payday alternative loans are a good option, especially when compared to payday loans. If you’re a credit union member or are able to join one, you can take advantage of the benefits a PAL has to offer–inexpensive fees, a capped APR %, and longer loan terms. But they are far from the only option. In fact, there are several other types of loans that can help in your situation.

Personal installment loans are a great example. They can be borrowed from many banks and online lenders. And they are an excellent choice because they provide more time for you to pay back the loan, which also helps lower your monthly payment. Plus, by paying back your loan installment on time every month, you can build your credit.
Sun Loan offers personal loans with competitive rates and loan terms that range from three months to three years. With a Sun Loan personal installment loan, you can borrow the money to cover your expenses without having to worry about paying the loan back–plus a lot more in fees–in a short period of time. At Sun Loan, customers are so much more than a credit score to us, so we look at a variety of factors when considering every loan application–not just your credit score. To apply for a personal installment loan, click here or visit your local Sun Loan branch to discuss your options with a loan professional.

Author – Amy Sines

Amy Sines is Vice President of Operations Support at Brundage Management Company, the management holding company for Sun Loan. She brings two and a half decades of experience in the consumer loan indu... Read more »

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