Say you're $400 short this month. A typical payday loan covers that gap for about $15 per $100 borrowed, or $60 for two weeks, which the Consumer Financial Protection Bureau calculates as a 391% APR. A payment plan from your utility company or an advance through your employer's payroll covers the exact same gap for free. Same $400, same week, and a $60 difference before a single rollover.
That's the whole argument for spending ten minutes on payday loan alternatives before you sign anything. Pew's research found the average payday borrower pays $520 in fees to borrow $375, because two-week loans have a way of turning into five months of renewals. Against numbers like that, ten minutes of looking might be the best-paid time of your year. Here's the full menu, with honest figures on what each option costs, how fast the money moves, and who it actually fits.
What Is a Payday Alternative Loan (PAL)?
Start with the option most people have never heard of. A payday alternative loan, or PAL, is a small loan offered by federal credit unions under rules set by the National Credit Union Administration, the federal agency that regulates them. Those rules are the whole point: they cap what the loan is allowed to cost.
- PAL I: borrow $200 to $1,000, repaid over one to six months. You need to have been a member of the credit union for at least a month before applying.
- PAL II: borrow up to $2,000, repaid over up to 12 months. No waiting period, so you can apply as soon as you join.
Both versions cap the interest rate at 28% APR and the application fee at $20, and the fee can only cover what processing your application actually costs. Rollovers are prohibited, which removes the exact mechanism that makes payday loans dangerous, and notes a credit union can only give you one PAL at a time.
