5 things to know about tribal loans

Tribal loans are often marketed as an “alternative” to payday loans. But that doesn’t necessarily make them better.

Tribal loans are made by lenders owned by Native American or Indian tribes, and the lenders operate within their tribe’s reservation. Tribal loans are often advertised as an alternative to payday loans for people who need emergency cash.

But tribal lending has been controversial because some lenders have claimed that their sovereign status means state and federal payday lending laws don’t apply. But not all courts and regulatory bodies agree. The Consumer Financial Protection Bureau is among the regulatory bodies that have sued tribal lenders over lending practices, including for things like not disclosing interest rates.

If you’ve considered taking out a tribal loan or are just wondering what they’re all about, here are five things you should know.

1. Some tribal lenders have claimed exemption from state and federal regulations

Payday lenders have been known to charge incredibly high fees. The CFPB has found that these high-cost loans can lead to endless rollovers and debt traps. But states have begun to crack down on payday lenders to try to limit predatory lending practices, with statutes that regulate payday loan amounts as well as interest and fees. In fact, the National Conference of State Legislatures, 37 states now have payday lending laws.

But some tribal lenders have said these laws don’t apply to them. They say they are wholly owned and operated by a tribal nation and, therefore, have sovereign immunity from these state laws. But again, not all jurisdictions accept this argument. It’s important to check with your state to see if it has guidance for tribal lending.

2. You may be charged a sky-high interest rate

Because of disagreements about regulation, tribal loans can be more expensive than payday loans. The CFPB says it’s common for payday lenders to charge a $15 fee for a $100 loan. That works out to the equivalent of an almost 400% interest rate for a two-week loan.

But costs for tribal loans could be even higher. In a 2017 lawsuit brought against four tribal lenders, which was later withdrawn, the CFPB said the annual percentage rates for the tribes’ installment loan products worked out to between 440% and 950%. According to the lawsuit, the CFPB alleged that the typical $800 loan paid over 10 months would end up costing the borrower $3,320.

Some tribal lenders in certain jurisdictions are currently charging an annual percentage rate of nearly 800% APR.

3. Tribal loans are often short-term loans

Many tribal loans are set up as installment loans — instead of loans that require full repayment when you receive your next paycheck, as with payday loans. This means you’ll typically have a longer term with tribal loans than with a payday loan.

But unlike other personal installment loans, you probably won’t be offered years to pay back what you borrow. Loan terms are typically less than a year. But with interest rates so high, you probably wouldn’t want to stretch out a tribal loan over a long period. The more quickly you can pay it back, the less interest you’ll have to pay.

In fact, if you read the fine print on tribal lender websites, some lenders will state that these are expensive forms of credit and are not suitable for long-term financing needs.

4. Tribal loans are often for small amounts

Although some tribal lenders may offer higher dollar amounts, it’s common to see relatively low loan amounts advertised.

The loans may be advertised for emergency needs, like car repairs or medical care, and are typically in the $1,000 ballpark.

5. You can usually apply online

You don’t need to live in a tribal nation to apply for a tribal loan. Most tribal lenders accept applications online — whether you are a member of the tribe or not.

Some tribal lenders promise fast loan funding with approval, with the potential to have money deposited into your bank account the same day under certain conditions or as soon as the next business day, depending on the lender.

What’s next?

Need emergency money but prefer to stay away from high-interest tribal loans? Here are a few alternatives you may want to consider.

• Payday alternative loans: Payday alternative loans are short-term installment loans that come with a 28% interest rate cap. But you will need to be a member of a federal credit union that offers one in order to qualify.
• Small personal loans: If you have good credit, you may qualify for a personal loan with a better interest rate. And you may even qualify for a small personal loan if you have bad credit.
• Credit cards: Although credit cards aren’t known for their low interest rates, the interest rate on your credit card may be much lower than what you’d get on some tribal loans. And if you have good credit, you may be able to find a card that offers a 0% intro APR period.
• Payday loans: While we wouldn’t recommend payday loans unless you’ve exhausted other options, they could actually be cheaper than some tribal loans — especially if you have bad credit.

When it comes to emergency cash loans, be careful. You don’t want to fall into a debt trap with a predatory lender. Check out our guide to emergency loans to help navigate your choices.

*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.