At times, you need some urgent cash. Say, for example, you need to handle an emergency. In this situation, finding a way to borrow some money can be a complex thing. For a good number of people, turning to payday loans is their first option. However, payday lenders take advantage of you by charging hefty interests and fees.
Also, they offer a short repayment period. The other option is taking a personal loan. This option, too, is not easy as you must meet particular criteria set by your bank. Fortunately, you can now have alternatives to payday loans, called Payday Alternative Loans (PALs). This article will help you understand what the PALs are and how they differ from traditional personal loans.
You probably think that these loans are just alternatives to payday loans because of the name. Well, you’re not alone. Many people will have the same interpretation. However, this is not the case even though they are one of the alternatives to payday loans (others are advances, overdrafts, credit card loans, and peer lending). If you are confused, do not worry as this article is here to educate you.
What Are Payday Alternative Loans?
In a simple definition, Payday Alternative Loans are a form of short-term loans or credit offered by federal credit unions offered to credit union members; they follow strict regulations. Unlike payday loans, credit unions must meet the regulations and requirements of the National Credit Union Administration, a body that regulates credit unions in the United States. Some of these rules are:
- The loan must be between $200 and $1000.
- The interest rate cannot be beyond 28% (but this depends on the set lending rates).
- The processing fee is not more than $20.
- You have a repayment term of between one and six months.
- You cannot take more than three PALs in a span of six months.
- Payday Alternative Loans cannot overlap each other. This aspect is common in payday loans, though.
- You need to be a credit union member for at least one month. However, the NCUA enacted new rules in 2018 to eliminate this requirement.
With these rules, Payday Alternative Loans have become more flexible and better than the normal payday loans or various alternatives. However, it is important to note that these rules only apply to federal credit unions offering them. Private credit unions can have other terms, even though they fall under the National Credit Union Administration (NCUA) regulations.
For a long time, people have confused the Payday Alternative Loans with personal loans. As you know, a personal loan is a form of loan you can borrow for a particular purchase or payment purposes. Mostly, it is unsecured meaning you will not need collateral; some lenders require some security. With this in mind, it is essential to determine the difference between the two loan types.
Differences Between A Payday Alternative Loan And A Personal Loan
These nation21’s dollar 2000 loans differ in terms of eligibility, repayment period, loaned amount, processing fee, etc. Here is an elaboration of each of these differences:
Eligibility involves the requirements you need to fulfill in order to qualify for the loan. Even though the loans are easy to qualify for and have a decent interest, it is not available for everyone. These loans are part of the credit union credit laws. Therefore, one must be a member of the credit unions to qualify for a PAL.
However, becoming a credit union member is not an easy task. The reason for the limited membership eligibility is because credit unions are not-for-profit organizations. Their purpose is to enable marginalized people to have an opportunity to access credit.
♦ On the contrary, eligibility for personal loans is not strict. First, you do not need to be a member of a credit union to get a personal loan. Secondly, you can get a loan from any lending agency such as banks, national lenders, online lenders, and peer-to-peer lenders.
Repayment terms are the next aspect that differentiates personal loans and Payday Alternative Loans. For the PAL, you have a repayment period of one to six months. This term is shorter than the personal loan repayment period. When you take out a personal loan, you have a repayment period of one or more years. This aspect allows you to have a lower monthly repayment. However, it also means you will be in debt for a longer duration, and it might be a good and bad idea.
♦ The loaned amount
As stated, Payday Alternative Loans are short, small loans, so, do not expect to get a huge amount. To reiterate, you can borrow a minimum of $200 and a maximum of $1000 from the PAL lenders. On the other hand, personal loans offer credit starting at $1000 and above. You can get a loan of $60,000 or more depending on your needs. When in need of small amounts to meet urgent needs, Payday Alternative Loans are a good idea.
♦ Similarly, if you are looking or in need of hefty amounts, personal loans are the best alternative. The loan processing fee and cost
Obviously, each loan has costs and processing fees. Some lenders offer inexpensive interest rates, but make up for that by charging a processing fee and other costs. To shield borrowers from exploitation, Payday Alternative Loans have a capped fee of $20. Lenders can charge below this amount, but not more. Since they are not-for-profit lenders, they charge lower interest. Consequently, the loan cost is lower compared with other lenders.
For personal loans, lenders have different terms. The lenders can have different costs for these loans such as origination, application, and processing fees. Others will not charge you any fee. For those who charge the fees, they can put it as a percentage of the loaned amount or use other criteria to determine it. At times, the charges will be higher than those of PALs.
It is essential to consider the terms and conditions of personal loans before accepting them. For the Payday Alternative Loans, you are safe from extra charges due to the capped fee rule.
♦ Processing time
When considering a loan, it is important to know the processing time. Shorter processing time is important when you need cash for an emergency. Like other payday credit companies, Payday Alternative Loans have a short processing period. This credit is set to help you handle emergencies. So, you will get money in a short duration, usually less than 24 hours after application.
For personal loans, you will need to wait longer before the loan processing process is complete. Remember, the lender needs to check various factors before releasing the requested amount. It’s clear that if you don’t need more than $1000 for an urgent issue, then PAL is a good option.
In a word, Payday Alternative Loans and personal loans are reliable emergency credit possibilities. They can help you deal with urgent cash needs and purchases. However, each of them has different costs and fees. You need to understand the terms and conditions set before applying for the loan. In addition, each of these loan types is suitable for particular cash needs. Now, you know the difference.
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