Alternative loans: what are they?
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Alternative loans: what are they?

March 27, 2023
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Alternative loans: what are they?

Payday loans loans have been a lifeline for many online applicants because of their speed of processing. However, they often come with absurd terms and high fees that can be difficult to pay. Opting for a safer and more efficient source of financing is therefore a wise decision.

For this reason, an alternative loan is a win-win for applicants for short-term and emergency loans.

This guide explains the procedures associated with alternative loans, the features to expect, and the main advantages of applying for one. You will also find out why it may be the best choice for permanently replacing short-term loans.

What is an alternative loan?

An alternative loan is usually a small advance of money with a short repayment period. The offering is often limited to some federal credit unions (which include member-owned nonprofit organizations). Alternative loans have low interest rates, which is a good deal for borrowers.

Unlike traditional loans, PABs are offered at affordable costs. This is a smart way to make ends meet in the short term. It allows borrowers to avoid using high-cost lenders and expensive for-profit organizations.

The loan is offered to provide low-cost products at a reasonable price. LAPs allow members of organizations to borrow money at a lower cost. At the same time, they have a longer period to repay the debt.

LAP is ideal for emergencies, like its counterpart. In particular, it can help meet immediate expenses such as unexpected car repairs, medical expenses, student loans, fees, transportation, and student stationery expenses.

Alternative loans and payday loans

Alternative loans are offered only by some federal credit unions (member-owned nonprofit organizations). These short-term loans are designed to prevent borrowers from opting for high-interest payday loans. Alternative credit unions do not check credit history, good or bad, for additional funds.

The highest application fee for an alternative loan is $20 per $100. Borrowers also benefit from a longer repayment period, which makes the loan easier to obtain. Alternative loans often have a term of less than 12 months. Their purpose is to provide monetary assistance at a reasonable rate.

Only for-profit online lenders offer short-term loans. Short-term loans are not necessary if borrowers have a high price and a good credit reputation for obtaining financing, given the quick source of money.

Short-term loans can have fees ranging from $10 to $30 per $100 borrowed. This small amount can go up to an APR of 400% on loans of any amount.

However, a cash advance must be repaid between two and four weeks after approval, although the timing depends on the provider. In general, PAL costs less than Payday.

Requirements for the Payday Alternative Loan

To be eligible for PAL, it is necessary to remember the requirements for obtaining the desired loans. These requirements are as follows.

  • Borrowers must be members of an organization that has access to PAL. Organizations set eligibility requirements.
  • The lender can confirm income after collecting and verifying the account and issue a payment that can be acquired in one lump sum.
  • Borrowers may have been members for one month or less and be able to obtain a cash advance from PALs due to the status held with the organizations. The organizations' rules differ on how to obtain a LAP.
  • Borrowers will have to submit evidence of financial eligibility, age, reasons for the loan, and statements of intent, and have no bankruptcy restrictions.
  • For online applications, the lender deposits funds into your bank account and must have access to automatic deduction of its repayment thereafter. The amount deducted monthly depends on the amount of the loan requested.

How to get an alternative loan

To obtain an alternative loan, applicants must follow certain steps to ensure that the procedures are correct and that they can get the loan they want. Here are the guidelines for obtaining an LPA.

Before applying for an LPA, you must be registered with a credit union. To be able to count on an LPA in the future, it is advisable to find a way to register in advance with a credit union. But this can be difficult because these credit unions have standards, rules and regulations to determine who will be approved for cash advances.

However, for borrowers who are already registered with a credit union with PAL, the process is easier. Simply call or visit the local branch to apply. The general procedure involves the following:

  • Be a good member.
  • Have a clear bankruptcy history and avoid any form of outstanding debt so as not to get trapped in another debt.
  • Obtain the necessary documents to apply for a loan, as outlined above.
  • Apply for an alternative loan of your choice.

Alternative loans: what to consider

Members should be well observed and advised before considering a loan, which may mean not even getting a cash advance and not falling into the traps of lenders.

Savings is another option to consider before applying for a loan.

Savings are funds set aside for future needs; they can be used to make payments for emergencies, repairs, maintenance, education, travel, etc. You can save by cutting costs or expenses to set aside some funds or by setting aside money to meet unforeseen needs.

Saving can also help you protect yourself from misfortune and avoid unnecessary borrowing. When you get into the habit of saving for future encounters, you are more likely to avoid having to take out a loan when your savings meet your needs.

Advantages and disadvantages of alternative loans

Let's look at the main advantages and disadvantages of alternative loans.


  • The alternative loan is one of the best ways to get a cash advance with a low interest rate and low application and processing fees.
  • The repayment period is longer; members can have up to a year to make payments after obtaining the loan.
  • Only members of the organization have access to the cash advance, which means more privileges.
  • Credit organizations establish rules and regulations to guide and protect their members when they take out a loan.
  • They help people avoid debt, unlike payday loans, which in most cases have a limited repayment period.
  • They help borrowers pay off debts from father to son, avoiding falling into a repetitive debt cycle.


  • It is only available to members of specific lending organizations.
  • Members must submit documents showing their contact information, such as account details and personal information, before they are eligible for LAP.
  • LAP is not an interest-free loan, so borrowers need to be aware of the interest that will be added to the loan amount.


There are many alternatives to payday loans. But the closest option is the alternative payday loan (APL). This cash advance option works similarly to payday loans. So if you dream of getting a quick payment without having to fill out a long list of requirements, this is the right option for you.

The downside, however, is that you must belong to certain unions that have access to PILs. Once you are in, however, you can say goodbye to payday loans and continue to get your extra money through PILs. Before deciding which one to choose, be sure to take note of the important features of this guide, as both have their strengths and weaknesses.

Irene Scott
Written by
Irene Scott
I’ve worked for more than 5 years as a Credit Analyst and more than 4 years as an Internal Auditor for one of the leading global financial institutions. I have been exposed to the credit review process, various banking products, financial security topics, corporate governance, operational risk, and the internal control framework of a complex, multinational organization.