Payday Alternative Loans (PALs): Rules, Limits, and the 28% APR Cap

A Payday Alternative Loan is a small-dollar loan that federal credit unions can offer under rules written by the National Credit Union Administration (NCUA). The rules cap interest at 28% APR and the application fee at $20 — a fraction of what a typical two-week payday loan costs, which often works out to roughly 390% APR or more. If a credit union is an option for you, a PAL is usually the cheapest fast-cash product available.

PAL I vs PAL II at a glance

Rule	PAL I	PAL II
Loan amount	$200 – $1,000	Up to $2,000 (no stated minimum)
Term	1 – 6 months	1 – 12 months
Membership tenure required	At least 1 month	None — available immediately after joining
Maximum interest	28% APR	28% APR
Application fee	$20 max, must reflect actual processing cost	$20 max, must reflect actual processing cost
Rollovers	Not permitted	Not permitted
Loans outstanding	One at a time; max 3 in any rolling 6 months
Overlap	You cannot hold a PAL I and a PAL II at the same time

Source: NCUA Part 701.21(c)(7) short-term small loan rules. Individual credit unions may apply stricter limits than the maximums above.

What a PAL actually costs

At the 28% APR ceiling plus a $20 fee, a $500 PAL repaid over six months costs roughly $44 in interest plus the fee — about $64 total. The same $500 borrowed as a two-week payday loan at a $75 fee costs $75 every time it is renewed, so three renewals cross $225 with the principal still owed. That gap is the entire reason PALs exist. You can model your own numbers with our APR calculator.

Who qualifies

Membership. You must be a member of the federal credit union. Eligibility is usually based on where you live, work, worship, or attend school, or on family membership.
Tenure. One month of membership for PAL I; PAL II has no waiting period.
Income. Proof of steady income — paystubs, benefit letters, or direct deposit history.
Credit. Most credit unions weigh your account relationship more heavily than your score. A thin file or a score in the 500s is often workable.
Account standing. Chronic overdrafts or a charged-off account at the same credit union will usually block approval.

How to apply, step by step

Find a federal credit union you can join. Use the NCUA credit union locator and check the field of membership. Many now include anyone in a given county or state.
Open a share (savings) account. This is what makes you a member; it is often $5 to $25.
Ask specifically for a "PAL" or "small-dollar loan." Not every federal credit union offers one, and some brand it differently (QCash, Advance Pay, Helping Hand).
Submit income documents. Two recent paystubs or a benefit award letter usually suffices.
Confirm the fee and APR in writing before signing, and set up autopay to avoid late fees.

Limits and drawbacks to know

State-chartered credit unions are not bound by the NCUA PAL rules, so terms may differ — ask which product you are being offered.
Not every federal credit union participates; availability is the biggest practical hurdle.
The $2,000 PAL II ceiling may not cover a large car repair or medical bill.
Joining and funding can take a day or two longer than an online payday lender.
Payments are reported by many credit unions, so a missed payment can hurt your credit — though on-time payments can help it.

If a PAL is not available to you

Ask the biller directly about a hardship or payment plan — see hardship loans.
An employer paycheck advance or an earned-wage access benefit.
A cash advance app with a flat fee instead of an APR.
An installment loan with fixed payments rather than a lump-sum payday due date.
Local emergency assistance: rental assistance programs and utility hardship funds.

Frequently asked questions

What is a Payday Alternative Loan (PAL)?

A PAL is a small-dollar loan offered by federal credit unions under NCUA rules. It caps interest at 28% APR and limits the application fee to $20, making it far cheaper than a storefront payday loan that often exceeds 390% APR.

What is the difference between PAL I and PAL II?

PAL I allows $200 to $1,000 over 1 to 6 months and requires at least one month of credit union membership. PAL II allows up to $2,000 over 1 to 12 months and can be issued immediately after you join, with no membership waiting period.

Do you need good credit to get a PAL?

No. Credit unions typically look at income, direct deposit history, and your account relationship rather than a high FICO score. Many approve members with scores in the 500s, though each credit union sets its own underwriting.

How many PALs can you have at once?

You can only have one PAL outstanding at a time, and no more than three PALs in any rolling six-month period. Rollovers are prohibited under NCUA rules.

How fast is PAL funding?

Most credit unions fund a PAL the same business day or the next business day once approved, especially if you already have a checking account with them.

Related guides

Educational guide. CashCompassPro is not a lender, credit union, or affiliate of the NCUA. PAL availability, fees, and underwriting vary by credit union — confirm current terms before you apply.