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By Brenda

What are Credit Union Payday Alternative Loans (PALS)?

Dec 08 2017 Parent Category I

Loans are a common option in the event that you need money. If you don’t have good credit though, getting a loan with good terms (or even getting one at all) can prove difficult. Many people with bad credit who are in need of quick money often turn to payday loans. While these loans provide you with fast cash for unexpected expenses, some may come with some rather costly interest rates and fees. A program started by the National Credit Union Administration (NCUA) is providing borrowers with the fast access to cash that they need without the fees and interest rates of traditional payday loans. This program is called credit union payday alternative loans (PALS).


Short Term Loans

A payday loan, or “fast cash” loan, is a short-term loan that may carry high interest rates. The biggest draw to these loans is that they don’t require a credit check, a feature that can be very alluring to someone who needs money for an unexpected expense and has very few options available. Payday loans are very short-term, usually expected to be paid back in full by your next paycheck. Fees for these loans vary from $15 to close to $100, giving some of these loans a high interest rate (sometimes as high as 400%). If the loan is not paid back in full by the due date, you could also be stuck with various other expensive penalties and fees. If this happens, you could get stuck in a vicious cycle.


What is a PALS?

A payday alternative loan is different. Like payday loans, the amount borrowed is typically small. They are designed however, to help borrowers in need of fast cash avoid the debt cycle that generally happens with traditional payday loans. These loans are regulated by the National Credit Union Administration. Credit unions are structured in such a way as to help their members to become more financially stable. The way the PALS are structured, they offer loans with low interest rates and no additional fees. They also help borrowers to make on-time payments. In doing so, they are able to assist borrowers on the path to more financial stability.


PALS Specifics

There are some terms and conditions that accompany PALS. One of the biggest terms is that the borrower must be a member of the credit union (and have been a member for at least one month). The maximum amount of money that can be borrowed is $1,000. The APR for PALS cannot exceed 28% and the application fees cannot exceed $20. Only one loan may be provided at a time, and borrowers cannot take out more than three PALS in a six-month period. The loans are repayable in one to six months and cannot be rolled over.

Along with being a member of the credit union, you must provide some documentation when applying for a PALS. This documentation includes recent paystubs, a form of identification and your phone number(s). One of the biggest advantages to PALS is that you don’t have to have good credit to qualify. Your credit union is more interested in your income and your ability to repay the loan amount. What’s more is that credit unions will generally report your payments to the three major credit bureaus, so on time payments can give your less than stellar credit score a much needed boost.


Additional Services with PALS

Credit unions that offer PALS will often offer counseling services to their borrowers. The exact counseling services vary from branch to branch. They may include such services as budgeting workshops for families, debt advice (getting out of debt and avoiding future debt) and helping those who are already stuck in the payday loan debt cycle. Many of these services are free, and are offered as a way to help you improve your financial situation.

Unexpected expenses can be frightening when you don’t have the extra cash laying around. When you don’t have the credit score for a traditional loan, the need to pay off those expenses quick can drive you to seek and apply for a payday loan. Payday loans are one option but a Credit union payday alternative loans provide you with another option. It is important to keep in mind however that even with better terms, short-term loans should not be used whenever there is an expense to pay. Used properly, they can help you to stay on track in the event of an emergency and help you to rebuild your credit at the same time.


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