Tribal loans are branded as an alternative to payday loans, but they can be just as dangerous and costly. Here are six things to know about tribal loans.
Exemptions Are a Gray Area
Short term loans like payday loans, have a lot of regulations within the financial services market. However, tribal land operates separately from the rest of the United States. There are, of course, limitations to this but with regard to high interest tribal loans, the courts aren’t quite sure how to treat them.
Federally recognized reservations are often a place where business that is not otherwise permitted in the rest of state for which the sovereign nation is located, is allowed for businesses wholly owned and operated by “Indian” tribes (Native American.) Casinos are a similar example.
It’s Not for Large Sums of Money
Tribal loans are typically limited in scope to less than $2,000. Usury rates charged would make repaying loan amounts that exceed even just a few hundred dollars nearly impossible for borrowers to repay.
One common purpose for a tribal loan is to pay for unexpected car repairs. These sorts of costs are immediate (borrowers need to be able to get to work), expensive enough to warrant some form of finance, but not so much that the borrower uses them to purchase a replacement car.
It’s A Short-Term Loan
Everything about tribal loans are near term. Repayment is expected in the loan agreement to be short term as is delivery. Unlike traditional installment loans, tribal loans are designed to be distributed in the same business day and require far less applicant information than applying for a loan.
Usually balances plus interest are due within two weeks, though terms can be shorter or longer. Progress must be made toward the loan regularly and pays interest first, then applies to the principle further extending the length of the loan.
They Charge High Interest Rates
If a borrower is considering a tribal loan, they should first exhaust credit card options. That may sound like heresy, but credit cards often max out at 30% interest APR (annual percentage rate.) While credit card interest rates are sky high when compared with mortgage rates (2.50-4%), personal or auto loans (0-10%) tribal loans can run as high as 300%.
Know Your Consumer Protection
Consumer protections that apply to the rest of the United States of America do not apply (necessarily, see first section.) However, should a borrower fail to repay their loan in full or in part, it can still negatively affect the borrower’s credit score.
Borrowers need to carefully consider the implications of a tribal loan in the tribal nation that governs the loan. Rules and regulations vary from nation to nation with no one-size-fits-all hegemony much like states that vary requirements from each other.
Find Out How To Apply
Borrowers can apply on reservations from tribal loan facilities and fill out a simple application that provides personal information with regard to the applicant. These one-page applications may be short to fill out but borrowers beware, some terms can change repayment times without notice.
Tribal loans serve a purpose for borrowers in a difficult situation, and especially those with challenged credit. However, every other financial option should be exercised first to avoid what can be a lasting and devastating financial decision.