How Joining a Credit Union Can Help You Avoid Payday Lenders

Many credit unions offer members access to far more reasonable options for short-term credit.

Need a quick, small loan?

Tempted to go down to that storefront office that offers fast, easy cash?

Don’t.

Go to a credit union.

There are plenty of lenders that offer so-called “payday loans.” Some provide short-term credit at a reasonable cost. Others don’t—and there are a lot of those.

For instance, the National Credit Union Administration says that a typical two-week payday loan with a $15 per $100 fee would have an annual percentage rate of almost 400%.

Some states have enacted laws that set an interest rate cap of 36%.

But credit unions can beat that. Credit unions that choose to make loans under a model developed by the agency currently can’t charge an interest rate any higher than 28%.

Credit Union Alternatives

The NCUA has developed two different loan models that many credit unions offer.

Under the Payday Alternative Loan (PAL) I program, a loan cannot exceed $1,000. It has a minimum term of one month and a maximum of six months, and a borrower must be a member of the credit union for at least a month before becoming eligible for the loan.

In an effort to encourage more credit unions to offer PAL loans, the NCUA has also developed a second version. Under the PAL II model, credit unions may offer loans up to $2,000, with a minimum term of six months and a maximum term of one year. Any member can become eligible for a PAL II loan as soon as they join a credit union.

Further, credit unions also are permitted to develop their own short-term loan programs, meaning additional options may be available as well.

Takeaway

The NCUA programs and interest rate cap are yet another prime example of the benefits of belonging to a credit union, and how the institutions look out for their members. While the PAL II loan model does offer new members immediate access to credit, to ensure you have the most options and are receiving the most favorable terms, find a credit union to join today!