Credit Union Payday Alternative Loans and Savings (PALS).
Credit Unions are trying to ensure that all families and individuals are able to borrow money at a somewhat affordable APR, and the Payday Alternative Loan & Savings, or PALS, is available to their members as a source of funding. Hundreds of national and regional lenders participate in this program. It is one of the tools used by credit unions that can provide provide borrowers access to low interest, affordable loans.
PALS was created in an effort to give families, including those considering to be non-prime consumers, an alternative to using higher priced lenders. It was created by the National Credit Union Administration in partnership with hundreds of local branches. It allows people that use credit unions, such as government employees, teachers, military members or veterans, and many others the ability to borrow cash at a very competitive APR.
The program focuses on the underserved as well. It can give people with credit scores below 660 (or even individuals with no credit history) the ability to borrow money at a much more affordable interest rate. Generally, the APR will be less than 35%, with some credit unions issuing loans at a rate of as low as 28% or even lower.
This interest rate, while still fairly expensive, is still much lower than other payday lenders. It is also much better than some of the other options that consumers with poor credit often turn too, such as car title loans or even pawnshops. Depending on the state where the borrower lives, and whether any regulations are in place or not, many borrowers may need to pay anywhere from 100 to even 400% APR by using another lender. So the credit unions are providing money at a fraction of the cost of other companies.
In other words, while it is never ideal for anyone to borrow money at interest rates greater than say 5 to 10%, this Payday Alternative Loan and Savings program can be considered the least risky option for a lower to moderate income household. It is obviously much more affordable than some of those loans with an APR of 400%+.
The amount of money that can be borrowed from PALS is usually just enough to allow the family to pay any emergency bills. After all, solving the crisis is really the one and only reason a payday type loan should ever be used. So PALs is focused on unexpected expenses such as a car repair, maybe a needed prescription medication or doctor appointment, clothing for a new job, or rent to avoid an eviction. Credit Unions will ensure that the money being used is targeted at specific bills.
In general, a credit union will cap the amount that is loaned out at $1000. However some set lower limits, and in some instances the Payday Alternative Loan and Savings (PALS) program will allow slightly more money to be borrowed. However this will vary based on the exact branch that the consumer is a member of. It may also depend on how long they have been a member of the credit union for, their scores and past payment practices, income, and other factors.
There are other terms and conditions in place as well. The rules and regulations from the National Credit Union Administration (NCUA) state that the terms of the loan can't be more than six months. There are also restrictions on if/when the person can roll-over the funds after the term ends. Most credit unions will not allow that to occur, as that is often what starts a dangerous cycle of debt.
Instead what they will do is ensure that the loan is amortized over the term of it. What this means is that the customer has an agreed upon payment plan that will break up how much of their monthly payment goes towards principal and how much to interest. The payment plan or amount will not change, and a credit union is not able to modify it. Of course if the customer does not pay on time then additional charges may be incurred, but this can only be done if the original terms of the payday loan are not adhered too.
The application fees are also much lower with the PALs program. Credit Unions can set a maximum origination fee of $20, but some local branches may even lower reduce that amount or initiate a payday type loan at no cost to the member. This will also depend on the person's history with that local branch, their credit scores, and more.
Credit Unions that participate in the Payday Alternative Loan (PALs) service also provide counseling to the borrowers. This can include many different things, and it will really depend on the local branch. After all, a local non-profit credit union really wants the customer to manage their finance properly. They do not want them to run up excessive debt, file bankruptcy, etc. This counseling is a major differentiator from a traditional payday lender, who is really in business just to make money for themselves. Some of these services offered include the following.
- Most will require the customer to save a portion of their income and place that money into a savings account as an emergency fund.
- They will arrange budgeting workshops for families.
- The PALs program also incorporate general debt advice sessions, which both help families get out of trouble as well as avoid it in the future.
- Assistance can be given to anyone that is already so called payday loan debt trap, as the specialists at a credit union can help them break this cycle.
These additional service, most of which are free, are just some of the other advantages to applying for a credit unions Payday Alternative Loan & Savings program. So not only can it provide a household with access much needed cash (though at a relatively high interest rate), but it also provides the borrower general advice on improve their financial literacy. The National Credit Union Administration Hotline can be reached at 800-755-1030, or their website can be used to find more information on loans that may be issued from PALS.