Call a federal credit union before you borrow from a payday lender, and ask for a payday alternative loan. Interest is capped at 28% a year, and the application fee can’t top $20. You repay it over one to 12 months instead of in one lump sum on payday.
A payday lender commonly charges $15 for every $100 you borrow. On a two-week loan, the Consumer Financial Protection Bureau puts that fee at an annual rate of almost 400%.
If you can’t repay the whole balance on your next payday and your state allows rollovers, the lender may let you pay just the fee and push back the due date. Then you owe a new fee on top of everything you borrowed.
The 28% and $20 caps come from National Credit Union Administration rules for payday alternative loans, or PALs. Every PAL must be paid off by the end of its term, with no rollovers.
A PAL I runs $200 to $1,000, repaid over one to six months, and requires at least a month of membership. A PAL II goes up to $2,000, repaid over as long as 12 months, with no waiting period after you join. Federal credit unions choose which, if any, to offer, and many state-chartered ones have similar loans.
Before you borrow at all, ask your employer about a pay advance and whoever sent the bill about a payment plan. If you still need a loan, ask your credit union for a PAL by name, or join one. Membership often comes through your job, where you live, or a relative who already belongs. Some online lenders use the PAL name, too, so make sure the lender is a credit union.
Then compare the total you’ll repay, not the fee per $100. Say a $400 car repair can’t wait. A payday loan at $15 per $100 means repaying $460 in two weeks. If you roll it over until week 12, the total reaches $760. A three-month PAL at the 28% cap takes three payments of about $140, or about $439 in all with a $20 application fee.
Better yet, ask your credit union now which PAL it offers and what it charges, before the next bill that can’t wait.
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