How Does an Alternative Payday Loan Work?
Alternative Payday Loans (ALP) are low value loans offered by federal credit unions. PALs are authorized by the National Credit Union Administration as long as certain guidelines are followed.
First of all, you must be a member of the credit union, and you must have been a member for at least a month before you apply for an alternative payday loan. Therefore, if you think you might be looking for payday loans in the future, you may want to join a credit union in advance. Credit unions have varying rules and membership fees, but they often offer a range of affordable banking products. So there might be other advantages to joining one.
For eligible members of credit unions, alternative payday loans cost between $ 200 and $ 1,000 and have repayment terms ranging from one month to six months. This is generally a longer repayment term than most payday loans. This means that you will be less likely to have to borrow again immediately to pay off your loan balance because you will be making smaller payments over time.
Where alternative payday loans really stand out is the cost. Application fees will be capped at $ 20. And the maximum interest rate on these small loans is 28%. While this is higher than what you would pay with most standard personal loans, it is still well below the effective rate for payday loans, which could exceed 400%.
Borrowers can purchase up to three PALs in a six-month period, but cannot switch between them. If you are having financial difficulty and need to borrow a small amount of money for a short period of time, this could be the perfect answer for you.
Of course, just because these loans are cheaper than payday loans does not mean that they are cheap. You should only borrow if you need to and borrow the minimum required to cover essential expenses.
Once you’ve paid off your loan, try to start saving an emergency fund so you don’t have to take out a loan to cover unforeseen expenses in the future. Ideally, your emergency fund will have enough money to cover three to six months of living expenses. But it doesn’t matter if it takes time to reach that level. Saving even a small emergency fund with a few hundred dollars could help you meet some unexpected costs so that you don’t have to borrow with an emergency loan in the future.