We all know that payday loans can give you a quick injection of money when you need it the most. These small loans do tend to have higher interest rates than a standard loan, and they can cause more financial hardship to the people they are designed to benefit.
But there is another option. Payday alternative loans are offered by credit unions and are designed to give you fast cash without the crippling interest rates.
But exactly what is a payday alternative loan and how do you qualify for one?
In this article, we’ll take a look at these credit union loans to help you gain a better understanding of them.
What Are Payday Alternative Loans?
Payday alternative loans are regulated by the National Credit Union Administration. The program launched in 2010. To be a payday alternative loan, the loan must meet the following criteria:
- Be a short-term small loan of between $200 and $1,000
- Be issued to borrowers who have been members of credit unions for at least a month
- Be affordable and not have an annual percentage of more than 28% or have an application fee of more than $20
- Be repaid in full after one to six months without any rollover
- Be provided one at a time with borrowers not receiving more than three payday alternative loans within six months
In 2019, a second payday alternative loan called PAL II was introduced. They have similar rules, however, you can borrow up to $2,000 over one to 12 months and you can take out the loan when you sign up to a credit union.
How Do You Qualify for a Payday Alternative Loan?
Your credit score will tell lenders about how good you’re likely to be at repaying debt, it is important to try to maintain a good credit rating for these reasons.
Often, people turn to payday loans because they don’t have a good credit score.
Payday alternative loans don’t require you to have a great rating either. Federal credit unions are more interested in finding out your income and ability to make repayments.
When taking out a payday alternative loan you might get asked to provide proof of income when submitting your application.
Not every credit union will offer a payday alternative loan. Give your local credit union a call or check their website to try to find out whether they offer them. If you’re not already a member, you should also ask about eligibility.
A credit union is a not-for-profit organization owned by its members. They can offer membership based on your location, religion, employer, military background, or based on associations or causes you’re involved with.
Generally, there is a one-time fee for membership. This can be as small as $5, however, you may need to make a deposit to your account initially.
Taking Out a Payday Alternative Loan
Payday alternative loans are a great way of borrowing cash. If you’re looking for a small, short-term fix you should approach your local credit union before looking at traditional payday lenders.
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