To get a payday alternative loan from a credit union, you need to be a member of a federal credit union that offers the program, then apply for either a PALs I or PALs II loan under rules set by the National Credit Union Administration. The interest rate is capped at 28%, the application fee at $20, and loan amounts run from $200 up to $2,000 depending on which version you use.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members The steps below walk through finding an eligible credit union, choosing between the two loan types, and getting through the application.
Find a Federal Credit Union That Offers PALs
Not every federal credit union runs a PAL program. Participation is voluntary, and only a fraction of federal credit unions have active programs, so the first task is finding one you can join that actually offers the product. The NCUA maintains a credit union locator at mapping.ncua.gov where you can search by location.
Federal credit union membership requires a “common bond” with existing members. That bond usually comes from one of three things: your employer, where you live, or an association you belong to. Community-chartered credit unions often accept anyone who lives, works, worships, or attends school in a defined region, which is broader than most people assume. Before joining, call the credit union or check its website to confirm it has an active PAL program.
Opening membership generally means depositing a small amount, often between $5 and $25, into a share savings account. That deposit establishes you as a member-owner and makes you eligible for the credit union’s loan products.
Choose Between PALs I and PALs II
The two versions of the loan differ mainly in size, term, and how long you have to be a member before you can apply.
PALs I loans run from $200 to $1,000, with a repayment term of one to six months, and you must have been a member of the credit union for at least one month before applying.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members
PALs II loans go up to $2,000 with no minimum, run one to twelve months, and have no waiting period. You can apply the same day you open your account.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members If you’re joining a credit union for the first time and need money now, PALs II is usually the path.
Both versions share the same borrowing limits. You cannot have more than one PAL outstanding at a time, and you cannot take out more than three PALs in any rolling six-month period. That three-loan cap covers both programs combined.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members
Rollovers are prohibited. A credit union cannot fold an existing PAL into a new loan with additional fees or a higher balance. The rules do allow a credit union to extend the repayment term of an existing PAL, within the original maximum, without charging new fees or advancing more money, but that’s meant to give a struggling borrower a little more time, not to enable reborrowing.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members
Gather What You Need to Apply
The NCUA does not prescribe a rigid document checklist, but it requires each credit union to keep a credit application on file that supports the lending decision.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members In practice, expect to provide:
- Proof of income, usually two or three recent pay stubs or a tax return, showing you can handle the repayment schedule.
- A government-issued photo ID such as a driver’s license, state ID, or passport.
- Your Social Security number for credit inquiries and tax reporting.
- Your full legal name, current address, phone number, and email. Everything should match your ID exactly, because mismatches slow the process down.
There is no federally mandated minimum credit score. The NCUA lets each credit union set its own underwriting standards and encourages them to look at your full financial picture, including recurring income, existing debt, and overall capacity to repay, rather than leaning on a credit score alone.2National Credit Union Administration. Payday Alternative Loans Final Rule Individual credit unions still have discretion, and some weigh credit history more heavily than others.
Submit the Application and Get Funded
Most credit unions accept PAL applications through their online member portal, though some prefer in-person or mailed submissions. After you submit, a loan officer reviews the file for compliance with NCUA lending rules. Turnaround varies. Some credit unions process applications the same day; others take a few business days when volume is high.
If you’re approved, you sign a promissory note laying out the amount, interest rate, repayment schedule, and your obligation to repay. Funds typically arrive in your checking or savings account by direct deposit, though some credit unions will issue a cashier’s check if you need physical access to the money.
One thing the credit union cannot do is require you to repay through automatic payroll deduction or preauthorized electronic transfers. Federal law prohibits conditioning a loan on the borrower agreeing to electronic repayment.3Office of the Law Revision Counsel. 15 USC 1693k – Compulsory Use of Electronic Fund Transfers The NCUA has echoed this: credit unions can encourage payroll deduction because it reduces missed payments, but they cannot make it mandatory.2National Credit Union Administration. Payday Alternative Loans Final Rule
What It Will Cost
The maximum interest rate on any PAL is 28%, inclusive of all finance charges. That rate comes from a formula in NCUA’s rules: 1,000 basis points above the general federal credit union loan rate ceiling, which currently sits at 18%.4National Credit Union Administration. Permissible Loan Interest Rate Ceiling Extended The NCUA has extended that 18% ceiling through September 2027, so the 28% PAL cap holds steady for now.5National Credit Union Administration. NCUA Board Extends Loan Interest Rate Ceiling
Credit unions can also charge a one-time application fee of up to $20. The fee has to reflect the actual cost of processing the application, so a credit union whose costs are lower should charge less. No other upfront fees are allowed. For PALs II specifically, the credit union cannot charge an NSF or overdraft fee in connection with the loan.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members
At the full 28% rate, a $500 PAL repaid over six months costs roughly $42 in interest.
If Your Application Is Denied
A denied PAL application triggers the same federal protections as any other credit denial. Under the Equal Credit Opportunity Act, the credit union must notify you of its decision within 30 days of receiving your completed application.6Office of the Law Revision Counsel. 15 USC 1691 – Scope of Prohibition The notice must be in writing and include the specific reasons for the denial, or at minimum tell you that you can request those reasons within 60 days.7Consumer Financial Protection Bureau. 12 CFR Part 1002 Regulation B – 1002.9 Notifications
Vague explanations like “you didn’t meet our internal standards” aren’t enough. The credit union must identify the actual factors: high debt-to-income ratio, insufficient income verification, limited membership history for a PALs I application, or whatever the real reason was. If you believe the denial was based on a protected characteristic such as race, sex, or marital status, you can file a complaint with the NCUA or the Consumer Financial Protection Bureau.
Credit Reporting and Repayment
The NCUA does not require credit unions to report PAL payments to credit bureaus, but it recommends the practice, and roughly 85% of federal credit unions with PAL programs report payment history to at least one major bureau.2National Credit Union Administration. Payday Alternative Loans Final Rule Ask before you borrow. Reporting cuts both ways: on-time payments can build a thin credit file, and missed payments will damage your score.
If you see trouble coming, contact the credit union before you miss a payment. Because the NCUA allows term extensions within the original maximum (six months for PALs I, twelve months for PALs II) without additional fees, some credit unions will restructure the timeline rather than push you into default.1eCFR. 12 CFR 701.21 – Loans to Members and Lines of Credit to Members One thing to know going in: a federal credit union has a statutory lien on the money in your savings and dividend accounts equal to what you owe, and if you default it can debit those accounts to cover the balance without going to court. Social Security, VA funds, and IRA balances are generally protected.8eCFR. 12 CFR 701.39 – Statutory Lien
Extra Rules for Military Borrowers
If you’re an active-duty service member or a covered dependent, the Military Lending Act adds protections on top of the PAL rules. The law caps the Military Annual Percentage Rate at 36% for covered credit, including installment loans like PALs.9Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents Because the PAL rate cap is already 28%, the practical effect is in how fees are counted: the MAPR folds in the application fee, credit insurance premiums, and debt cancellation charges that might otherwise push the effective cost above 36%.10Consumer Financial Protection Bureau. Military Lending Act (MLA)
Credit unions must also give military borrowers specific disclosures before the loan closes, including a written and oral statement of the MAPR, all disclosures required under federal lending regulations, and a clear description of the payment obligation. If the oral disclosure is delivered through a toll-free number, that number must stay active long enough for the borrower to call and listen.11National Credit Union Administration. Military Lending Act (MLA) Prepayment penalties are prohibited on any loan covered by the Military Lending Act.