In the US, there has been a lot of news about predatory lending and larger lenders that sometimes prey on those with lower credit ratings. Unsecured or collateral-backed tribal loans are often issued in lieu of other types of personal loans, such as credit card debt consolidation or home equity loans.
Let’s talk about what a tribal loan is and why it is important for those interested in getting one to make sure they seek an honest borrower when looking for options.
Additionally, you’ll also learn more about MoneyLion tribal loan alternative opportunities that don’t involve predatory lenders.
What is a tribal loan and do they work?
A tribal loan is any type of loan that was issued by a lending institution that was based on Native American reservations, or for Native Americans living on these reservations. These loans are also called Indian loans or reservation loans and can be issued by either banks or other financial institutions based on the reservation, which are known as “tribal lending institutions”.
It’s important to note that these loans have been around longer than the “predatory lenders” who prey on borrowers with lower credit scores. However, the difference between these tribal loan lenders and predatory lenders is trust. Reservation loans are typically issued by banks or other financial institutions who have established themselves in the community and are trusted by both the bank and their borrowers.
Tribal soverign immunity
Tribal loans are regulated by tribal courts rather than state courts. Tribal courts can make judgments against Native Americans who owe money to other Native Americans or tribes. The best way to avoid this situation is to only borrow from people who you know will not take you to tribal court.
Sovereign tribal immunity also allows the tribes themselves the ability to carry out legal proceedings against non-members within their jurisdiction. This means that if someone borrows money and does not pay it, the tribe may be able to sue them in tribal court for repayment of part or all of the debt. They may also be able not charge interest rates higher than what is allowed by state laws as well as have more favorable repayment terms.
More recently, state and federal government are prohibiting online tribal lenders to hide behind the tribal soverign immunity. These predatory payday lenders disguise themselves as “tribal” lending, threaten their customers and reep the benefits of collecting on loans with triple digit APRs.
In 2019, Washington state made the decision that online payday tribal lenders would need to comply with state interest rate limits, licensing laws, other state laws, and if they fail to comply they can be sued.
What you need to know about tribal loans
Now that we’ve covered the basics of tribal loans, let’s dive into frequently asked questions surrounding tribal loans.
Only meant for short term use
If you need cash within a month, tribal loans may not be the best solution. Tribal lenders typically require longer repayment periods than other types of lenders do. There may be waiting periods for updating financial information and getting the loan processed.
While the phrase “longer repayment periods” might make you think years, the typical repayment term is around a year. The downside to this 12 month repayment period combined with sky-high interest makes this a hard loan to pay off in time–ultimately resulting in extra fees.
When considering an option, research the lender before applying and the following factors: assurance that they’re federally insured or regulated by any state agency, as well as how often they can lend you money in relation to payday loans.
Higher interest rates–sometimes
The interest rates on the loans can be very high and not covered by the federal government’s direct loan programs which makes it difficult to obtain a tribal loan
Some predatory online tribal lenders can entice you with their claims of no credit checks. As said before, most of the time these are falsified online lenders hiding behind the faux claim of tribal immunity laws and they can charge up to 800% APR!
Looking for a 0% APR option? MoneyLion’s Instacash offers up to $250 interest free–instantly! Download the MoneyLion app and get funds today!
Credit checks may apply
Many tribal lenders require that applicants make credit checks at obtaining tribal loans. These loans tend to focus on applicants with poor or no credit, which can make it especially difficult for someone with good or solid credit history of paying back debts on time.
Processing time
If you choose to apply for a tribal loan it is best to do so at least two or three months before your next payday. It can take time for an application to be processed and approved by the tribe and for them to supply you with the funds you request.
What happens If I do not pay back a tribal loan?
Many states, like Washington, are taking a strict stance against predatory online payday lenders claiming to have tribal soverign immunity. However, if you fail to pay back a legal tribal lender they can sue you and take you to course to recoop the loan.
Safe tribal loan alternatives with MoneyLion
Worried about whether or not a tribal loan is safe and secure? With MoneyLion, you can put your worries at ease knowing we have no hidden fees, require no hard credit checks and you have FDIC protection. Whether you need money now, want to build your credit or want to begin investing–we’re the one stop shop!
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