Payday alternative loans (PAL I and PAL II): rules and how to get one

A payday alternative loan (PAL) is a small loan from a federal credit union with a maximum rate of 28% a year and an application fee of no more than $20. There are two kinds. PAL I lends $200 to $1,000 over 1 to 6 months after a month of membership. PAL II lends up to $2,000 over 1 to 12 months with no wait.

Both are built to do what a payday loan doesn’t: get paid off. Every payment reduces the balance, and the loan can’t be rolled over.

PAL I and PAL II side by side

These are the rules in 12 CFR 701.21(c)(7), as in force on October 22, 2026.

	PAL I	PAL II
Amount	$200 to $1,000	Up to $2,000 (no minimum set)
Term	1 to 6 months	1 to 12 months
Membership before you borrow	At least 1 month	No waiting period
Maximum rate	28% a year	28% a year
Application fee	Reasonable, never more than $20	Reasonable, never more than $20
Rollovers	Not allowed	Not allowed
Repayment	Fully amortizing installments	Fully amortizing installments

With a PAL II, the credit union also can’t charge overdraft or NSF fees in connection with the loan. Two limits apply across both types. You can have only one PAL at a time, and a credit union can’t make you more than three PALs in any rolling six-month period.

“Fully amortizing” means each payment covers that period’s interest plus part of the balance, so the loan is gone at the end of the term. A payday loan renewal is the opposite: the fee covers the cost of waiting and the balance never moves.

Where the 28% comes from

Federal credit unions are normally limited to 15% a year. The NCUA Board can set a higher temporary ceiling, and it currently sits at 18%. PALs are allowed 10 percentage points above that ceiling, which is where 28% comes from.

The 18% ceiling has been extended through September 10, 2027. In the same letter, NCUA says federal credit unions “may still charge up to 28 percent on payday alternative loans.” The Board has to revisit the ceiling at least every 18 months, so the PAL maximum could change after that date.

28% is a maximum. A credit union can charge less.

What a PAL costs next to a payday loan

An example. You need $400.

• Payday loan: $15 per $100 for 14 days is a $60 fee. Renew it five times and you’ve paid $300 in fees and still owe $400.
• PAL at the 28% maximum: $400 repaid in equal monthly payments over 6 months is about $72.22 a month. Total interest comes to about $33, plus an application fee of up to $20.

Those PAL figures assume the full 28% rate, a 6-month term and monthly payments. They’re arithmetic, not an offer; the credit union sets your actual rate and term. Run your own numbers in the calculator.

These rules bind federal credit unions

The PAL rule is an NCUA regulation for federal credit unions. A state-chartered credit union follows its own state’s rules, so it may offer something similar under a different name and different terms. Ask what the rate, fee and term are rather than assuming the federal limits apply.

How to find a credit union that offers PALs

Start with NCUA’s Credit Union Locator. It finds credit unions near you, and you can look up any credit union by name. Not every federal credit union offers PALs, so you’ll need to call or check the website.

Membership is the step that trips people up. Each credit union has its own rules for who can join, so ask about that first.

If you’re in a hurry, the membership rule decides which loan you can get. With PAL I, you’d join now and wait a month. With PAL II there’s no wait, so if the payday loan is due in ten days, ask specifically for a PAL II.

What to bring and what to ask

NCUA suggests credit unions underwrite PALs with things like two recent pay stubs. Bring:

• Your two most recent pay stubs, or other proof of income
• A photo ID
• Your payday loan agreement and the current payoff amount

Ask:

1. Do you offer PAL I, PAL II, or both?
2. What rate would I be charged, and what’s the application fee?
3. How long is the term, and what’s the monthly payment?
4. Can I open my membership and apply the same day?
5. Can the loan proceeds go straight to paying off the payday loan?

A credit union can lend only so much through PALs in total (its aggregate PAL lending is capped at 20% of its net worth), so one credit union may be more willing than another. If the first says no, try a second.

If you can’t get a PAL

You still have options. Ask the payday lender for your state’s extended payment plan, if your state requires one (check your state’s page). Talk to a nonprofit counselor about the bigger picture; see nonprofit credit counseling. And if the lender is draining your account on payday, read how to stop payday loan withdrawals.

The full order of moves is in how to get out of payday loans.