If you’re in the market for a personal loan, you might consider a credit union, a not-for-profit financial institution owned by its members.
Credit unions offer an alternative to banks, which are for-profit institutions. Unlike banks, you need to be a member of a credit union to use its services — but credit union loans can come with lower interest rates and flexible terms. Keep reading to learn how credit union loans work and how to get one.
Credit union loans work the same way bank loans do: You borrow money from a financial institution that you must repay, with interest, according to the terms of the loan. You’ll need to join a credit union in order to qualify for a credit union loan, which may come with a lower rate and lower (or no) fees. It may be possible to qualify for a credit union loan even if you get turned down at a bank.
Credit unions offer many of the same services banks do, only they have a people-helping-people philosophy. Their not-for-profit status means that any profits generated are returned to members in the form of lower interest rates, lower fees and higher savings rates.
But these small, short-term loans are a very expensive way to borrow money. They typically come with fees that equate to annual percentage rates, or APRs, in the triple digits and can trap borrowers in a cycle of debt. For this reason, payday loans should only be considered as a last resort.
A payday alternative loan, or PAL, is a less costly option. You can find PALs through some federal credit unions. The fees associated with a PAL are generally much less than payday loans, but they serve the same purpose — getting you fast cash when you need it. With a PAL, you might be able to borrow more money, have longer to pay it back and pay a lower interest rate than you’d likely pay with a payday loan.
You need to be a member of a credit union that offers PALs and generally be in good standing for at least a month before you can apply for a PAL, but you can sometimes apply for one right away.
You need to be a member of a credit union that offers PALs and generally be in good standing for at least a month before you can apply for a PAL, but you can sometimes apply for one right away.
Each credit union can set its own standards regarding the approval process for a PAL. For that reason, a PAL might be more difficult to get than a payday loan, but a PAL is a better product. In fact, because of their predatory nature, payday loans are banned in some states. It’s worth it to shop around with various credit unions to get a PAL versus getting a payday loan.
