Personal Loans

What Is a Payday Alternative Loan?

If you're in a financial pinch, think twice about a payday loan. A payday alternative or personal loan is a better choice.
A woman with a concerned expression sits at a table where her monthly bills are spread out. She talks on the phone and looks at her computer.
Written by:
Anna Baluch
Edited by:
Kristin Marino verified

If you’re ever in a financial pinch, you might be tempted to use a payday loan.

A payday loan is a short-term, small-dollar loan you repay once you receive your next paycheck, usually within two to four weeks.

While a payday loan is easy to get, it can also be very costly and hurt rather than help your finances.

That’s why you should know about payday alternative loans as well as other options.

Compare Your Personal Loan Rates
Check Your Personal
Loan Rates
Choose a purpose for your loan
Always free and will not impact your credit score.

What Is a Payday Loan?

A payday loan is a small, high-cost loan designed to hold you over until you get paid.

While some states don’t allow payday loans, others cap borrowing limits at around $500 to $1,000.

You can get a payday loan online or in person without a credit check. This may seem enticing, especially if you have no credit or bad credit but need cash fast.

Once you apply for a payday loan, you’ll receive the funds quickly and agree to pay them back by your next payday.

If you can’t repay your loan on time, your lender may let you renew it or roll it over to extend the due date. But this will cost you more in the long run.

Speaking of cost, you may wonder how much you’ll pay for a payday loan.

While the price will depend on where you live and the lender you choose, a flat rate that ranges from $10 to $30 for every $100 borrowed is typical. Often, lenders will present the cost of payday loans as an APR, which includes the interest rate and fees.

As you shop around for a payday loan, you’ll find that these products come with exorbitant APRs that are very difficult to repay.

This is mainly because most of them are rolled over.

Ideally, you’d avoid payday loans altogether and save yourself from a cycle of debt.

Search personal loans, compare rates, and find more alternatives to payday loans.

What Is a Payday Alternative Loan?

A payday alternative loan (PAL) was created in 2010 by the National Credit Union Administration (NCUA).

It’s a credit union loan that’s designed to give consumers an alternative option to expensive payday loans.

There Are 2 Types of PALs: PAL I & PAL II

PAL Is can range from $200 to $1,000 with repayment terms of 1 to 6 months and maximum APRs of 28%.

These products come with a $20 application fee and you must be a credit union member for at least one month to take advantage of them.

PAL IIs come with loan amounts of up to $2,000, terms between 1 to 12 months, and maximum APRs of 28%.

There is no waiting period like there is with a PAL I,  so you may be eligible as soon as you join a credit union.

Fortunately, you don’t need good credit to benefit from a PAL.

Most credit unions require you to join and prove you have the income to repay your loan.

You’ll likely be asked to share your pay stubs or other proof of income when you submit your application.

Keep in mind that while PALs are common, not all credit unions offer them so you might have to shop around a bit to find them.

Payday Alternative Loans vs. Payday Loans

There are a number of reasons payday alternative loans are a better option than payday loans.

First and foremost, they’re far more affordable and can save you thousands of dollars on your overall cost of borrowing.

Plus, they have longer repayment periods so you may be able to pay them back over several months, rather than a few weeks.

Just like all financial products, however, payday alternative loans come with some drawbacks to consider.

You must join a credit union and pay a small fee to take out a PAL.

In addition, you can only receive one PAL at a time and no more than three PALs in a six-month period. Also, if you prefer a PAL I, you’ll have to be a credit union member for at least one month to get approved for one.

What If You Don’t Qualify for a Payday Alternative Loan?

In the event you’re not eligible for a PAL or decide it’s not right for you, personal loans should be on your radar.

Offered by banks, credit unions, and online lenders, personal loans give you a lump sum of money upfront. Then, you repay what you borrow plus any interest and fees over a period of a few months to several years or longer.

How Much Can You Borrow With a Personal Loan?

While borrowing amounts vary from lender to lender, most personal loans range from $1,000 to $50,000.

Some lenders will even let you borrow up to $100,000, as long as you have good credit and a stable income.

How Long Do You Have to Pay Off a Personal Loan?

Terms are usually between one and five years, although there are personal loans with longer terms of up to 7 years.

What Can You Use a Personal Loan For?

Typically, you can use a personal loan for any purpose, such as a car repair, medical bill, home improvement project, or debt consolidation.

It’s a flexible financing product that may help you meet a variety of financial goals.

Qualifying for a Personal Loan

It’s important to note that most personal loan lenders will pull your credit to determine whether to approve you.

But you might be able to prequalify online and check your offers with a soft credit pull, which won’t have any impact on your credit score.

Prequalifying is a great way to compare your options and find the best one for your unique situation.

Applying for a Personal Loan

Once you find a personal loan that meets your needs, you’ll want to formally apply online or in person.

Be prepared to share basic personal information, such as your name and Social Security number as well as financial details like your monthly rent or mortgage payment and monthly income.

You might also have to submit documents that prove your identity and income, such as a government-issued ID, paystubs, tax forms, and bank statements.

Getting Approved for a Personal Loan

Most lenders will approve you for a personal loan the same day you apply, within 24 hours, or in a few business days.

Upon approval, you can receive your funds via direct deposit, prepaid card, or check. This is a huge plus if you have an emergency expense and can’t wait long for the funds.

As long as you make your loan payments on time, every time, you’ll be able to build or improve your credit and open the doors to better rates and terms down the road.

What to Consider When You Explore Personal Loans

Not all personal loans are created equal. In fact, there are countless options at your disposal.

That’s why it’s a good idea to do your research and compare the following factors as you find products that pique your interest.

Eligibility Requirements

Some lenders will look for high credit scores. Others are more lenient and will approve you with bad credit or no credit, as long as you can show proof of income and employment. If you don’t have the best credit situation, rest assured there are personal loans available to you.

Interest Rate

The interest rate you receive will dictate your overall cost of borrowing. A lower interest rate can lead to hundreds or even thousands of dollars in savings. The best rates are reserved for borrowers with good to excellent credit.


You may be able to choose a short-term or long-term personal loan. While a long-term will lead to lower monthly payments, a short-term is ideal if you’d like to save as much as possible on interest. Think about what’s most important to you before you settle on a term.


It’s not uncommon for personal loans to charge fees, like origination fees, late fees, and prepayment penalties. These fees are charged in addition to interest. The good news is that many personal loans offer minimal to no fees.


Some personal loans come with extras that you may benefit from.

These may include flexible repayments, free credit score monitoring, and discounts for enrolling in autopay.

If you’re considering two similar personal loans, their perks can help you make a decision.

Personal Loans, Payday Alternative Loans, and Payday Loans FAQs

Where can I find a payday alternative loan?

PALs are offered by federal credit unions. You will need to join a credit union and potentially pay a fee to qualify for one.

How do I apply for a payday alternative loan?

Once you become a credit union member, you can fill out an online application or stop into a local branch to complete one in person. You’ll need to provide details about your finances and may undergo a credit check.

How much can I borrow with a payday loan?

The amount you can borrow will depend on the laws in your state. In most cases, you can get a payday loan that ranges from $50 to $1,000.

Can I get a personal loan with bad credit?

Yes, some lenders have flexible requirements and are willing to extend personal loans to borrowers with no credit or poor credit.

How much will a personal loan cost?

Personal loans are usually more affordable than payday loans. Your interest rate, term, and borrowing amount will determine how much you pay for one.