Borrowing money from tribal lenders? What you need to know

Installment loans from tribal lenders come from companies owned by Native American tribes on tribal land. The Indian tribe companies accept online loan applications and offer short-term loans.

What are tribal loans?

Tribal loans are advertised to be great alternatives to payday loans. Beware. Just because these loans are designed and marketed this way, does not make them more appealing than traditional payday loans.  They tend to target people that require emergency funds quickly, but may not always be the most attractive option as they are an expensive form of credit.

In addition, this type of lender has a controversial history. Often, many of these lenders claim sovereign status, so typical state and federal payday lending guidelines do not apply. Watch out for interest rates and read the terms and conditions of the loan to ensure proper lending practices. Not all state law recognizes tribal lenders as adequate places to borrow money, so check your local and state laws to see if your state qualifies. 

If you are still considering applying for a tribal loan or simply want to know more about them, here are the top 5 things you must know about tribal lending.

1. Tribal lenders are often exempt from state and federal regulation

Like payday lenders, tribal lender financial services are known to charge ridiculously high fees. The Consumer Financial Protection Bureau found that these loans are often debt traps that can cause great financial stress in the loan term. 

Recently, states have begun to limit these predatory practices, but many tribal lenders claim that these laws do not apply to them. They claim exemption due to the fact that they are owned and operated by a tribal nation and have sovereign immunity from these regulations. It is always important to check your state’s guidelines for tribal lending.

2. Tribal lenders charge high interest rates

Tribal loans can be very expensive, often with sky-high interest rates on a short-term loan. In addition, they often charge extra fees and excess interest rates.

The CFPB has found that APR for tribal loans are typically between 400% and 950%. For a small loan amount of around $800 can end up costing the consumer over $3,300 over the course of a 10-month loan term. Due to these high interest rates, the quick cash may seem appealing, but in the long run can have dire consequences on your bank account. 

3. Tribal loans are short term

Tribal loans are similar to payday loans, but the repayment process is different. They are set up as installment loans, whereas payday loans must be repaid when you receive your next paycheck. 

Standard loan terms from tribal lenders are typically less than one year. However, you may want to pay off these loans even sooner, due to the astronomical interest rates. The faster you pay it back, the less interest you will pay based on your loan agreement.

These loans are not suitable for long term financing but should be considered short term credit.

4. Tribal loans are for small amounts

Typically, tribal loans are for small amounts. They are for emergency funding, like medical expenses or car repairs. In addition, if you need money quickly, they are a great option. Upon approval, the funds can be available to you as soon as the next business day. 

5. Applications can be found online

Tribal lenders accept applications online. In addition, you do not have to be a member of the tribe to apply for a loan. They also promise fast-funding. These loans can be a good option if you have bad credit. However, many tribal lenders will do a hard credit check, which may impact your credit score.

Next steps

If the high cost of tribal loans is less-than-appealing, there are a few alternatives to consider. 

• Payday alternative loans: These are short-term installment loans with a 28% interest rate cap. You must be a member of a federal credit union in order to qualify.
• Small personal loans: If you have a great credit history, you may be able to meet qualifications for a personal loan with more attractive interest rates. 
• Credit cards: Credit cards are also a great solution, even if they do charge higher interest rates. These interest rates are almost guaranteed to be lower than what a tribal lender will offer.
• Payday loans: These are often not recommended, but they may still be cheaper than loans from tribal lenders. 

If you need emergency cash, watch out. Interest rates can be high and you may fall into debt traps or experience predatory lending practices. As these are offered from a tribal lending entity wholly under the supervision of a sovereign nation located inside the US, they may have different financial laws and regulations than the rest of the United States. Many also only offer service Monday through Friday from 8 am to 4:30 pm so be aware of closing times for these facilities and making your on-time payments.