If you need a few hundred dollars in a hurry, it helps to know how Denver credit unions vs installment lenders compare before you sign anything. Colorado voters capped small loans at 36% APR, so the gap is narrower than it used to be. It has not disappeared, though, and cost, credit impact and speed can all differ. This guide walks through both options in plain terms.
Quick answer: A credit union is usually the cheaper first stop in Denver. Federal credit union payday alternative loans charge at most 28% interest plus an application fee of at most $20, while a licensed small loan in Colorado is capped at 36% APR. Licensed installment lenders can still be a fallback when you cannot join a credit union in time, as long as you compare the total cost.
What each option is
A credit union is a member-owned cooperative. Earnings go back to members through lower loan rates, higher savings rates or lower fees. A licensed installment lender is a for-profit finance company that makes loans you repay in scheduled payments. In Colorado these are supervised lenders and must hold a license. For a wider view of loan types, see installment loans in Denver.
What Colorado’s 36% cap means
Colorado is a 36% APR state. Proposition 111, approved by voters in November 2018 and in effect since February 1, 2019, capped what used to be called payday loans. The law calls them deferred deposit loans. Before the cap, they averaged well over 100% APR. Since then, most payday storefronts in Colorado have closed, and today’s legal product is a small installment loan capped at 36% APR.
- A lender may not lend you more than $500 at any one time.
- The minimum term is six months, with no maximum term.
- If you repay early, the lender must refund a prorated share of the finance charge.
- You may cancel the loan by 5 p.m. the next business day after you take it.
- A returned payment can bring a charge of no more than $25 per loan.
For more on how the cap works, read Colorado’s 36% APR cap explained.
The cost gap in real dollars
Here is a worked example at the legal ceiling. Say you borrow $500 from a licensed lender at 36% APR and repay it in six equal monthly payments. The payment is about $92.30 a month, the interest is about $53.79 and the total repaid is about $553.79. Stretch the same $500 over 12 months and the payment drops to about $50.23, but the interest rises to about $102.77. A lower payment feels easier, yet it costs more overall.
Now a credit union loan, as an illustration only. If you borrowed $1,000 at 18% a year over 12 months, the payment would be about $91.68 a month and the interest about $100.16. Your own rate depends on your credit and the credit union, so use this to see the pattern, not as a quote.
Payday alternative loans from federal credit unions
Many federal credit unions offer payday alternative loans, known as PALs. The National Credit Union Administration sets the cap: at most 28% interest, plus an application fee of at most $20. Because the fee sits on top of the interest, a very small, short PAL can cost more than the interest rate alone suggests. Always ask for the full dollar cost.
Not every credit union offers PALs, and you usually have to be a member first. The NCUA explains the program at ncua.gov.
Joining a credit union in Denver
Membership rules differ from one credit union to the next. Some accept anyone who lives, works, worships or studies in a certain area. Others serve a specific employer, school or group. Check each credit union’s rules on its own site or at a branch. Most ask you to open a basic savings account, so ask what the opening deposit is. Many Denver workplaces and schools have a credit union tie, so ask your employer or school too.
Credit reporting and your score
Credit unions commonly report payment history to the credit bureaus, so on-time payments can help build your credit. Reporting varies by lender, so ask before you borrow. A loan that is never reported will not help your score, but a missed payment sent to collections can still hurt it. You can check your reports free every week at AnnualCreditReport.com. To see what lenders review, read what lenders check before approving you.
Speed: where installment lenders may win
A new credit union member may need a day or more to open an account and get a decision, while some licensed lenders move faster. If your car needs a repair to get you to work tomorrow, that gap matters. Still, a rushed decision is the most common way people pay more than they planned. If you can, call a credit union first and ask how quickly it can decide.
Online lenders and cash advance apps
Some of the most expensive offers come from online lenders and phone apps. Online and out-of-state lenders must follow Colorado law when they lend to Coloradans, and they should hold a Colorado license. Many claim tribal ownership or an out-of-state bank partnership. A 2023 Colorado law that applies rate caps to some out-of-state bank loans is being challenged in federal court, and the outcome is not final.
Do not rely on a lender’s claim. Check its license with the Colorado Attorney General at coag.gov before you borrow. For apps that advance your pay, add up every tip and instant-transfer fee. The guide to APR vs. interest rate shows how to compare offers fairly.
Service members and car-secured loans
Active-duty service members, including active Guard and Reserve, and covered dependents are protected by the Military Lending Act, which caps the cost at 36% MAPR. That measure includes most fees. Veterans, retirees and civilian workers are not covered. Airmen, Guardians and families linked to Buckley Space Force Base in Aurora can also ask about emergency help from the Air Force Aid Society through the base.
Be careful with any loan secured by your car. Colorado has no separate title-loan law, so such a loan must follow the Uniform Consumer Credit Code and come from a licensed lender. You can lose your car if you cannot pay.
A simple three-question test
- What is the APR in writing, and what total dollar amount will I repay?
- Does the lender report on-time payments to the credit bureaus?
- Is the lender licensed in Colorado, and can I confirm it with the Attorney General?
If a lender will not answer clearly, walk away.
Cheaper than any loan: help in Denver
Sometimes the best loan is no loan. Dial 2-1-1 for Mile High United Way, which can point you to rent, food and utility help in the Denver area. Xcel Energy offers payment arrangements for past-due balances, and Energy Outreach Colorado can help income-qualified households with energy bills. More ideas are in rent and utility help in Denver.
When each option makes sense
If you can join a credit union, start there. A PAL or a small personal loan will usually cost less and may help your credit. If time is tight and no credit union can help, a licensed installment lender at or below 36% APR is a reasonable fallback, as long as you can afford the six months of payments. Treat unlicensed or unclear online offers as a last resort.
Frequently asked questions
Usually, yes. A federal PAL charges at most 28% interest plus an application fee of at most $20, and Colorado caps licensed small loans at 36% APR. Credit union personal loans can cost less still. On a very small loan the fee matters, so compare total dollars.
A deferred deposit loan is limited to $500 at a time. A lender may make a second loan only if the total stays at $500 or less and at least 30 days have passed since the last loan.
Yes. You need to qualify for membership and usually open a basic account. Rules differ by credit union, so check before you apply.
It can, because credit unions commonly report payments to the credit bureaus. Ask before you borrow, since reporting practices differ.
No. You cannot face a criminal penalty for taking a deferred deposit loan or because a check bounces, unless the account was closed before the agreed date. A lender can still pursue the debt in court.
Use the license search at the Colorado Attorney General’s site, coag.gov. Do this for online lenders too. If a lender gives you trouble, Colorado Legal Services helps low-income residents with debt collection problems.
This article is educational and is not financial or legal advice. Before you borrow, confirm the lender is licensed with the Colorado Attorney General — Consumer Credit Unit (UCCC Administrator), and read the fee disclosure in full.