If you’re looking to borrow funds and have been exploring your options, chances are you’ve come across tribal loans. But are they a safe option or should you look elsewhere?
Keep reading to learn the answers to these questions and much more.
What is a Tribal Loan?
A tribal loan is an offering of financial institutions owned and operated by Native American tribes.
Tribal loans are unsecured, installment loans that cannot be rolled over if the borrower is unable to make timely payments. Instead, they are designed to be paid back over the life of the loan and are only offered in small-dollar amounts.
In most instances, loan amounts are between $500 and $2,000, with repayment periods spanning between 6 to 24 months. However, the loan amount, interest rate, and repayment periods vary by the borrower’s financial situation, income, and creditworthiness.
Most of the lenders are members of the Native American Financial Services Association.
How Are Tribal Loans Regulated?
Tribal lenders must adhere to federal consumer lending laws. However, they are exempt from state regulations regarding loans, due to the fact that they operate on reservations, so they have sovereign immunity.
Key Benefits of Tribal Loans
Available in states where payday lending is prohibited
Because tribal lenders are covered by sovereign immunity, they can extend loans in states where payday lending is prohibited. This means borrowers that have been rejected at every turn by traditional banks due to credit woes may have an opportunity to take out a loan with a tribal lender.
Fast funding times
Upon approval and verification of your employment or income, you can expect to receive the funds in your account in as little as one business day. However, disbursements are sometimes delayed if there are problems with the prospective borrower’s application (or if there’s a banking holiday).
No prepayment penalties
Most tribal lenders do not charge prepayment penalties to borrowers who pay their loans off early. This is a major perk because you can avoid paying a ton in interest if you’re able to get back on your feet sooner rather than later.
Incentives for repeat customers
Once you’ve taken out a loan from a tribal lender and demonstrated that you can handle debt responsibly, they may offer incentives to you the next time around. Oftentimes, you’ll qualify for a longer repayment period or a reduced interest rate.
An Important Consideration
Tribal loans are accompanied by hefty interest rates. And although the repayment terms are intended to be flexible and foster affordability, it also means that the lender will have even more time to collect interest from you.
For these reasons, tribal loans should only be considered as a last resort for small emergencies, and you should pay off the balance, plus any interest and fees as quickly as possible. Otherwise, you could end up spending just as much, if not more, as you would with a payday loan.
How to Qualify for a Tribal Loan?
You do not need to be of Native American descent to qualify for a tribal loan nor do you need to live on a reservation. In fact, these loan products are open to all. But you do have to meet certain criteria to qualify:
- Be at least 18 years of age
- Have qualifying employment or provide a valid source of income
- Possess a bank account that’s in your name
Keep in mind that each tribal lender has their own unique set of qualification criteria. So, it’s best to reach out to the lender to confirm before moving forward with the application.
How To Evaluate Tribal Lenders
For starters, any tribal lender that you’re considering should be a member of Native American Financial Services Association.
The Native American Financial Services Association holds their members to a high standard to “ensure consumer protection, quality service, and customer and industry interactions during the life of the loan,” notes their website.
Some lending best practices that tribal lenders under the Native American Financial Services Association umbrella are expected to comply with the following:
- Do they comply with the Truth in Lending Act by disclosing the costs and terms associated with the loan offer?
- Are there advertisements aligned with their offerings or do they seem a bit pushy or embellished?
- Does the lender offer alternative ways to remit payment beyond Automated Clearing House (ACH) debits?
- Does the lender allow you to reject the loan and return the proceeds within 24 hours without incurring any additional fees or penalties?
- Are there credit score and income requirements?
- How fast do they disburse funds?
- Do they assess prepayment penalties?
- Are their rates comparable with similar lenders in the marketplace?
- How much do they charge for origination fees?
Should You Take Out a Tribal Loan?
If you’re strapped for cash and would prefer something other than a cash advance, a tribal loan may be worth considering. You’ll only have access to a small amount, so you won’t get in over your head in debt. Even better, you won’t be forced to fork over the entire loan amount plus interest and fees on your next pay day. Instead, you can make payments over time to take care of the balance.