If you need a small amount of money quickly and you’re weighing a payday loan, there’s one option most people have never heard of that is almost always cheaper: a Payday Alternative Loan, usually called a PAL.
PALs exist for exactly one reason — federal credit unions were allowed to create a small emergency loan designed to compete with payday lending on price. That’s the whole point of the product.
What a PAL is, in plain words
A PAL is a small, short-term loan from a federal credit union. The rules that govern it are set nationally, which means the cost is capped and the terms are standardized in ways that ordinary short-term loans aren’t.
Broadly, PALs work like this:
- Small amounts — enough for a car repair or a utility bill, not a large purchase.
- A few months to repay, not a single lump sum on your next payday. That difference alone is what stops many people rolling a loan over repeatedly.
- The cost is capped by federal rules, and the application fee is limited to covering the credit union’s actual processing cost.
- You must be a member of the credit union. Some versions require you to have been a member for a short period first; others are available as soon as you join.
The exact amounts, terms, and fees vary between credit unions and the rules can change — ask the credit union directly for their current PAL terms rather than relying on any figure you read online, including here.
Why they’re usually the cheapest option
Two reasons. First, the cost cap: a PAL is designed to be affordable rather than profitable. Second, the repayment structure — spreading repayment over months rather than demanding it all on payday is what keeps people from re-borrowing to cover the last loan.
If you’ve read our guide on what a short-term loan really costs, you’ll recognize the pattern: it isn’t usually the first loan that hurts, it’s the fourth.
How to find one
- Search “credit unions near me” — or use the National Credit Union Administration’s credit union locator at ncua.gov.
- Check whether you’re eligible to join. Credit unions have membership rules — where you live, where you work, an employer, a church, a community group. Many are far broader than people expect.
- Ask specifically: “Do you offer a Payday Alternative Loan?” Not every credit union does. Ask about the amount, the repayment period, the total cost, and how quickly funds arrive.
- Apply in person or online, depending on the credit union.
The honest limitations
PALs are excellent, but they aren’t right for everyone:
- You need to be, or become, a member — that takes a little time and often a small deposit.
- Not every credit union offers them, so you may need to call a few.
- They’re usually not instant. If your bill is due tomorrow, a PAL may not arrive in time.
- Approval isn’t automatic. Credit unions still assess whether you can repay.
If a PAL doesn’t fit
Work down the rest of the list before turning to expensive credit — our guide to real alternatives to payday loans covers payment plans, employer advances, and local assistance in order of cost. And whatever you choose: borrow only what you can repay.
If a short-term loan turns out to be the right tool for your situation, we can help you see whether a lender will work with you — free, with no obligation. Start your free request. We’re not a lender; a lender decides, and you can walk away from any offer. More guides at /guides/.