Unless you’ve been living under a rock for most of your life, you’re probably at least vaguely familiar with what a payday loan is. Payday loans are short-term loans that are designed to help those who need to get their hands on cash between now and their next payday. But do you know what a payday alternative loan is? Chances are, you might not. Payday alternative loans, which are also known as PALs, are still relatively new concepts.
So, what exactly is a payday alternative loan? That’s what we’re going to discuss today. We’re going to break down what one is, talk about the payday alternative loan pros and cons, and make sure you have a clear understanding of PALs as a whole.
Continue reading to check out our brief guide on payday alternative loans. It’ll help you decide if taking out one of these kinds of loans fits into your financial plans.
What Is a Payday Alternative Loan?
It is a type of loan that you can take out through many of the country’s federal credit unions. Although there are some credit unions that don’t offer payday alternative loans, many of the more than 5,000 credit unions in the U.S. will set you up with them.
These loans tend to carry lower interest rates than traditional payday loans do. They’re also typically repaid over a longer period of time. It has turned payday alternative loans into an attractive option for many people.
What Makes a Payday Alternative Loan Different From a Payday Loan?
Some people make the mistake of confusing payday alternative loans with payday loans. They hear the word “payday” and automatically assume that they’re one and the same.
But there are several things that make these loans dramatically different from payday loans. Here are a few of them:
- They have lower interest rates than payday loans
- They have longer repayment periods than payday loans
- Payday alternative loan lenders report payments that are made to credit bureaus while payday loan lenders only report those who default on their loans
On the surface, you might lump payday alternative loans and payday loans into the same category. But as you can see, there are some distinct differences that cannot be ignored.
What Can You Use This Loan For?
While there are some differences between payday alternative loans and payday loans, you can use them both for many of the same things. Generally speaking, both of these types of loans will be utilized when people are in a bind and need to get access to cash fast.
You might want to consider using a payday alternative loan to cover:
- Emergency medical or dental services
- Surprise car repairs
- Funeral costs
You can essentially use a payday alternative loan for almost anything that you want. As long as you’re able to qualify for one, you can decide how to spend the cash that you receive after you’re approved for a loan.
Who Is Eligible?
Everyone can benefit from taking out a payday alternative loan. But not everyone is going to be eligible to receive one.
To secure a payday alternative loan, you’ll need to meet certain requirements. Here are some of the boxes that you’ll have to check to get approved for a payday alternative loan:
- You’ll need to be a member of a credit union for at least a month in most cases
- You’ll need to be looking to borrow somewhere between $200 and $1,000
- You’ll need to be able to repay a payday alternative loan in approximately six months at most
- You’ll need to take out no more than three payday alternative loans during a single six-month period
You’ll also usually have to be able to prove that you have the income to repay a payday alternative loan. Credit unions won’t be all that concerned about your credit score. But they will ask you to provide them with proof of income in most instances to reduce their risk.
What Are the Pros and Cons?
Now that you know a whole lot more about payday alternative loans than you did before you started reading this article, let’s get into talking about some of the pros and cons of payday alternative loans. It’ll help you decide if applying for a payday alternative loan will be the right move for you to make.
Here are some of the biggest payday alternative loan pros:
- You can obtain the cash that you need to pay for things like medical bills, car repairs, etc. in a hurry
- You can lock in a low-interest rate compared to the interest rates on most payday loans
- You can take your time while repaying a payday alternative loan
- You can put yourself in a position to avoid defaulting on a payday alternative loan and ruining your credit
It’s worth noting that there are also a few cons that should be on your radar. Here are several of them:
- You will need to show a credit union that you have the means to repay a payday alternative loan
- You will have to be a member of a credit union before they’ll even think about giving you a payday alternative loan
- You will need to have a plan in place for how you’re going to repay a payday alternative loan fast
- You will have to pay more for a payday alternative loan than some other types of personal loans
You should be aware of these cons of a payday alternative loan. But even when you take them into consideration, it’ll still be a smart idea to take out this type of loan in many cases.
Who Should You Trust to Provide You With a Payday Alternative Loan?
If you’re going to try to take out a payday alternative loan sometime soon, you shouldn’t attempt to do it through just any credit union. You should instead either use a credit union that you’re already familiar with or look for a local credit union that has a great reputation.
You should also be diligent about comparing the interest rates that different credit unions offer on payday alternative loans. By taking this approach, you should be able to lock down a payday alternative loan that won’t break the bank.
How Can You Apply?
Are you convinced that a payday alternative loan would be a good choice for you? If so, you should take the right steps to obtain one. You’ll need to work your way through the application process to get the payday alternative loan that you want.
These are the steps that you’ll have to take to get approved for a payday alternative loan:
- Find a credit union that offers payday alternative loans
- Sign up for an account with this credit union if you aren’t already a member of it
- Ask for an application
- Complete an application
- Provide a credit union with proof of income to be eligible for a payday alternative loan
- Wait for a credit union to tell you if you’ve been approved for a payday alternative loan
- Take a look at the terms for a payday alternative loan from a credit union to make sure that they look OK to you
Time is usually going to be of the essence when you want to take out a payday alternative loan. So you should start working through these steps ASAP if you want to get approved for a PAL sooner rather than later.
Is a Payday Alternative Loan Right for You?
At the end of the day, you’re going to be the only one who can decide whether or not a payday alternative loan is right for you. But in recent years, many people have come to appreciate the benefits of applying for payday alternative loans vs. payday loans.
You should see what kinds of loan terms you can get by applying for a payday alternative loan in your area. You might be surprised to see how low the interest rates on some payday alternative loans are.
Try Taking Out a Payday Alternative Loan Today
Unlike payday loans, payday alternative loans haven’t been around for all that long. The National Credit Union Administration only came up with them in 2010.
But since then, lots of people from all across the country have benefitted from payday alternative loans. They’ve put them to good use while paying for a variety of things and have seen the benefits of taking out a payday alternative loan for themselves. You should look into doing it soon if you haven’t already.
Contact us to discover other options that you’ll have when you need to borrow cash fast.