Typical payday loans can trap you in a sort of debt quicksand, racking up fees and charges while you struggle to find a way to escape. But there’s another kind of small-dollar, short-term loan, called a payday alternative loan (PAL), that can provide you with fast funds at a modest interest rate.
PALs have a number of consumer protections baked in, potentially providing you with a lower-cost loan alternative that still delivers the money you need when you need it.
What is a payday alternative loan?
A PAL is a small-dollar personal loan with a relatively short repayment period that a borrower can use instead of turning to a typical payday loan. But you can only get a payday alternative loan from a federal credit union. Fortunately, some credit unions let you apply for a PAL as soon as you become a member. These are great alternatives to payday loans, especially if you need an emergency loan.
There are two types of payday alternative loans: PALs I and PALs II. The federal National Credit Union Administration (NCUA) board creates the rules that govern each loan type. Both PALs I and II are closed-end loans, meaning you receive the full amount upfront and get a set period of time to pay it back. They both cap interest rates at 28% (which is significantly lower than rates on payday loans), and are both fully amortized, which means your payments are made in equal installments over the life of the loan.
- PALs I offer loan amounts between $200 and $1,000, with a minimum loan term of 1 month and a maximum of 6 months. You’ll need to be a member of the credit union for at least 1 month to use a PAL I.
- PALs II have no minimum loan amount and a maximum of $2,000. The minimum term is one month, but the maximum is 12. You can get a PAL II immediately after becoming a member of the credit union.
Good to know
The application fee for a PAL can’t be more than $20.
How do payday alternative loans work?
To get a payday alternative loan, you need to be a member of a federal credit union that offers them. You also don’t need to have good credit to qualify for a PAL, making them a great option for those with bad credit.
If the credit union approves your loan application, you’ll receive your funds. After that, you have a set amount of time to repay the loan, plus interest. The exact amount of the loan, the APR, and the repayment period will be spelled out in your loan agreement.
Learn More: How Do Payday Loans Work?
Payday alternative loans vs. payday loans
Payday loans come with astronomically high fees that can equate to an annual percentage rate (APR) of 400% or more, depending on where you live. With a short two to four weeks before the loan is due, many people struggle to repay the entire balance plus fees, sinking into a debt trap where they roll the loan over and over again, paying more and more in fees or interest.
Payday alternative loans have capped interest rates, offer longer terms, split repayment into several installments, and do not allow loan rollovers.
Learn More: Payday Loans vs. Personal Loans
| | |
|---|
| Up to $1,000 with a PAL I or $2,000 with a PAL II | Varies by state; usually $500 to $1,000 |
| Must be a credit union member, credit score requirements may vary by credit union | Must have bank account and proof of employment |
| 1 month minimum, up to 6 months for a PAL I and 12 months for a PAL II | Usually 14 days, with total amount due at once (a “balloon payment”) |
| Varies; maximum 28% interest rate | Often in the triple digits |
| | Usually between $15 and $35 per $100 borrowed |
How to apply for a payday alternative loan
You can apply for a payday alternative loan either online or in person, depending on the credit union and your preference. You’ll likely need to provide some personal information, including your name, address, date of birth, and Social Security number. You’ll also need to specify how much you’d like to borrow, and you may need to provide proof of income, such as pay stubs.
Some credit unions may require you to be a member in good standing, which means that you might not be able to get a payday alternative loan if your other loans with the credit union are delinquent. The credit union may also run a hard credit check when deciding whether to approve your loan, which can lower your score by a few points for up to a year.
Learn More: Payday Loan Requirements
Alternative options for payday alternative loans
If you need money quickly and want to avoid payday loans as well as payday alternative loans, you have options.
- Small personal loans: You can typically get a smaller loan amount ($100 to $1,000) from some banks, such as Bank of America or U.S. Bank. But you need to have an account in order to qualify. For example, Bank of America offers a balance assist program of $500, which is repaid in three monthly installments, for a $5 flat fee.
- Negotiate your bills: Talk to your creditors about the financial hardship you’re experiencing. They may be willing to adjust your payment schedule or extend your payment due date until you can get back on your feet.
- Borrow from family or friends: If you need to borrow a small amount, a loan from a friend or family member could be a simpler and more affordable way to get money. Be sure to pay them back as soon as you can to preserve your relationship, and get the terms in writing to lower the risk of misunderstandings down the line.
- Ask for an advance: Some employers may be willing to advance you a portion of your paycheck ahead of payday so that you can cover unexpected emergencies. However, be aware that if an employer requires you to repay the advance out of future paychecks with interest, it could get very expensive, very quickly.
- Try a cash advance app: Apps like Chime, EarnIn, and Brigit offer cash advances against your next paycheck, usually in exchange for optional tips or monthly subscription fees. Just know that borrowing money this way can result in triple-digit APRs and be as expensive as a regular payday loan, especially if you expedite fund delivery for a fee or leave a tip.
- Use a credit card: If you need to cover an expense quickly, a credit card might be a better solution than a payday loan or PAL, especially if you use a card with a low- or 0% interest offer. Keep in mind that you’ll need to pay off the balance before the payment due date or end of the promotional period to avoid finance charges, and that credit cards have an average interest rate of 21.19% as of August 2023.
- Get emergency assistance: If you’re really in a bind, check to see what emergency assistance options are available to you. Local charitable or governmental organizations may offer help with food, rent, or utilities if you’re struggling to pay your bills. 211 is an organization that can help you reach out to local resources in your community.
- Side hustle: Depending on how much you need, especially if it’s a smaller amount, a side hustle could cover the cost of your financial situation. Some jobs you can take on to make extra cash include rideshare driver, food or grocery delivery person, errand courier, home cleaner, babysitter, dog walker, or snow shoveler.
Advertiser DisclosureOverview
Lightstream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses like home improvements or weddings. Funds are available as soon as the same day you apply, and you'll have up to 12 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans. There are no origination fees, and rates are low — Lightstream's lowest APR beats SoFi's advertised lowest APR by 1 percentage point. But you'll need good credit to qualify.
Unlike most lenders, Lightstream does not let you prequalify on its site. Nor does it provide a contact phone number next to its customer service hours on its website.
Repayment terms
2 - 12 years, depending on loan purpose
Eligibility
Available in all states except RI and VT
Time to get funds
As soon as the next business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Overview
Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
Overview
Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Eligibility
Available in all 50 states
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Overview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Overview
LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Eligibility
Available in all 50 states
Loan uses
Debt consolidation, paying off credit cards
Overview
SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Fees
Option to pay an origination fee (up to 6%) in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Overview
Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 8.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Overview
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, and WV
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Repayment terms
1 to 5 years (2 to 5 years through Credible)
Overview
It’s worth considering a personal loan through Splash if you have good credit (ideally, a FICO score above 700). The platform offers loans from a wide range of lenders, and next-day funding is available. Plus, Splash has a live chat feature so you can get real-time answers without having to wait on hold or for an email. Loans are available up to $100,000 if you apply via Splash’s website.
Rates are competitive, but borrowers with excellent credit may find lower APRs elsewhere. If you need a repayment term longer than five years, you’ll need to look elsewhere as well.
Loan amount
$5,000 - $100,000 (up to $35,000 on Credible)
Eligibility
Available in all states except VT. OH and NM net disbursed amount must be greater than $5,000. MA must be greater than $6,000
Time to get funds
Same day available, typically 1-3 days
Loan uses
Debt consolidation, home improvement, medical expenses, major purchases
Overview
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Overview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Eligibility
Available in all states except MA, MS, NV, and OH
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Overview
BHG Money stands out for offering the largest loan amounts — up to $200,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher. However, if you have a cosigner that meets these requirements, BHG will consider your application.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 2% and 4%, depending on your financial profile. Loan funds are available within three to 14 days of loan approval. Note that you can't prequalify with BHG.
Fees
Origination fees, late fees
Eligibility
Available in all states except Maryland and Illinois
Loan uses
Debt consolidation, baby (adoption), engagement ring financing, moving (relocation), business, home improvement, special occasion, cosmetic procedures, major purchase, taxes, credit card refinancing, medical expenses, vacation, wedding, other
Fees
Origination Fee, $15 Late Fee, $25 NSF Fee
Eligibility
Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories
Time to get funds
Funds typically deposited into your account in 1 business day13
Loan uses
Debt consolidation, credit card refinancing
Overview
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
Fees
Origination fee, unsuccessful payment fee, late fee
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Time to get funds
As soon as 1 to 2 days after acceptance
Loan use
All except business, and education
Payday alternative loans FAQ
Where can I get a payday alternative loan?
You can get PALs from certain federal credit unions. These are the only financial institutions that offer this loan type. Not every federal credit union offers payday alternative loans, though.
Learn More: How To Get a Payday Advance Loan Online
Why are payday alternative loans better than payday loans?
Unlike a typical payday loan, payday alternative loans are designed to provide low- or moderate-income borrowers with access to credit without creating a cycle of debt that traps them into paying high fees for months on end. Payday alternative loans are structured with certain safeguards that protect borrowers while providing them with the funds they need.
Can I get a payday alternative loan with bad credit?
Since the credit union offering the payday alternative loan may check your credit during the application process, it’s possible you could get turned down for a loan for bad credit. However, payday alternative loans are designed to help you with your finances and gain access to greater financial security, so you could be approved even if you’re worried about your credit. Plus, if you are approved for a PAL and make your payments on time, it could help boost your credit score over time.
How do I qualify for a payday alternative loan?
To qualify for a payday alternative loan, you’ll typically need to be a member of the credit union. You’ll also need to show proof of income (such as pay stubs), as well as proof of identity, and may need to provide other documents, too. The credit union may run a credit check during the application process for a PAL.
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Meet the expert:
Mary Beth Eastman
Mary Beth Eastman is a Credible authority on personal finance. Her work has been featured by The Balance, Money Under 30, and more.
