ALEXANDRIA, Va. (6/1/15)--The National Credit Union Administration’s payday alternative loans (PALs) program is a way for consumers to get access to cash without outrageous fees and interest rates, according to The Motley Fool.
In an article exploring how PALs can prevent consumers from falling victim to high-cost payday loans, The Motley Fool provides tips for getting such a loan.
The NCUA adopted the PAL program in 2010 to allow federal credit unions to make short-term loans to members. Credit unions can charge up to 28% annual percentage rate (APR), which the article says is “far lower than the triple-digit interest of a payday loan.”
Loans worth $200 to $1,000 can be taken out, with terms ranging from one to six months, and application fees that cannot exceed $20. Rollover loan renewals and balloon payments are prohibited.
“These payday alternative loans are definitely a much better option than traditional payday loans, but that doesn't mean they should be used whenever you have an expense to pay,” the article reads. “The 28% interest rate that credit unions are allowed to charge is still more than you'd pay with most credit cards, and it's a relatively high cost of borrowing.
“So it's still important to do your best to live within your means, budget properly for expenses, and avoid taking out short-term loans if possible. However, it's good to know there's a more reasonable alternative to a payday loan if you need it,” the article noted.
Credit unions can also offer their own payday alternative products, provided they fall within the PAL guidelines.
The Motley Fool gives an interesting example: Reliant FCU, Casper, Wyo., offers a short-term loan with an APR of 18% regardless of credit score, but borrowers must take out double the amount they want to borrow and place half in a savings accounts that is released to the borrower when the loan is paid in full.
CUNA’s position on PALs is unchanged from that included in its 2010 comment letter to NCUA regarding the then-proposed program.
“CUNA supports the ability of credit unions to provide beneficial short-term, small amount loans as alternatives to predatory payday lending, which we agree has no place in the financial marketplace," the letter reads. "However, CUNA is concerned that the [program] may be too prescriptive with regard to these types of loans and requests that NCUA provide additional flexibility for those credit unions that want to offer these types of programs.”