A payday alternative loan is a small loan that federal credit unions are permitted to offer under rules set by the National Credit Union Administration. The headline number is the one that matters: the APR is capped at 28%, against the 261% to 652% typical of payday lending. Most borrowers who would benefit have never heard of them.
Written by the Loan For Any Purpose USA lending team. Reviewed by the Loan For Any Purpose Editorial Review Team. Last reviewed September 10, 2026. We explain products we do not sell as well as the ones we do.
What the rules allow
| PAL I | PAL II | |
|---|---|---|
| Amount | $200–$1,000 | Up to $2,000 |
| Term | 1–6 months | 1–12 months |
| Interest rate cap | 28% APR | 28% APR |
| Application fee cap | $20 | $20 |
| Membership required first | At least 1 month | No waiting period |
| Loans at one time | One PAL outstanding at a time | |
Not every federal credit union offers PALs, and state-chartered credit unions follow their own rules, so the terms you are quoted may differ. The two things to confirm are the APR and the fee.
What it saves
On $500 over 6 months at 28% APR, the payment is about $90.27 and the total interest is roughly $42, plus up to $20 in application fee. The same $500 borrowed as a payday loan and renewed three times costs $300 in fees with the principal still outstanding.
| Option on $500 | Cost of credit | Status after 8 weeks |
|---|---|---|
| PAL, 6 months at 28% APR | About $62 including fee | Balance reduced, on schedule |
| Payday loan, renewed 3 times | $300 | $500 still owed |
How to get one
- Find a credit union you can join. Eligibility is based on employer, location, family membership or an associated organisation, and many have open charters covering a whole county.
- Open a share account. Membership usually requires a small deposit, often $5 to $25.
- Wait out the membership period if a PAL I is what is on offer. One month is typical.
- Apply. Credit unions consider borrowers with weak credit, and many weigh direct deposit history heavily.
Where PALs fall short
- Speed. Expect one to three business days, sometimes longer if you are joining at the same time. If the bill is due today, this route may not reach you in time.
- Availability. Offering PALs is optional and many credit unions do not.
- Amount. $2,000 is the ceiling under PAL II, and $1,000 under PAL I.
- Membership friction. Joining takes a form, a deposit and sometimes a wait.
If a PAL is not available in time or at the amount you need, our installment loans run from $500 to $5,000 with next business day funding, at a higher rate than 28% but far below payday pricing. More options in cheaper alternatives.
Frequently asked questions
What is a payday alternative loan?
A small loan offered by federal credit unions under National Credit Union Administration rules. The interest rate is capped at 28% APR and the application fee at $20. PAL I covers $200 to $1,000 over one to six months; PAL II goes up to $2,000 over up to twelve months.
Who can get a PAL?
Members of a federal credit union that offers them. PAL I generally requires at least one month of membership; PAL II has no waiting period. Credit unions consider borrowers with weak credit and often weigh direct deposit history heavily.
How fast is a payday alternative loan?
Usually one to three business days, and longer if you are joining the credit union at the same time. If the money is needed the same day, this route may not be fast enough.
Do all credit unions offer PALs?
No. Offering them is optional, and state-chartered credit unions follow their own rules. Confirm the APR and the application fee before applying, because the terms you are quoted may differ.
Borrow $200 to $5,000 for any purpose
Apply in about five minutes and get a decision in minutes. Checking your rate won't affect your FICO® score.