Tribal Loans: Learn How They Work

Personal loans and lenders come in many different forms. Shopping for the best one that fits your specific financial needs can be difficult. It’s not always clear which ones are right for you and which ones are safe. Tribal loans are just one of the options you have when searching for emergency cash. 

It’s essential to do your research no matter what loan you consider. Reading reviews, checking their website, and asking questions about terms and rates are great ways to start. And if you’re specifically interested in tribal loans, read on to learn more about them to make an informed decision. 

What Is a Tribal Loan?

Tribal loans are offered by lenders owned by Native American tribes. These lenders operate within the tribe’s reservation, but they can also provide their loans online. Many of these loans are marketed as loans for borrowers who usually use payday loans for financial emergencies.

Any loan offered by a tribe-owned institution or offered to Native Americans living on a reservation could be considered a tribal loan. Tribal lending institutions may be banks or other types of lenders. 

These institutions operate under something called “tribal sovereign immunity.” This means that they create and enforce their laws within the reservation. So if you default on a tribal loan, you may be required to handle the matter in a tribal court. 

Tribal sovereign immunity also means that tribal lenders don’t have to abide by the state laws that regulate financial products and lenders. This could mean that a tribal lender can charge whatever interest rate they see fit. In short, tribal loans are legal because they are offered outside of the normal state and local laws for loans and lenders. 

How Do They Work?

These loans usually operate in a similar way to other short-term loans. The process may be familiar if you’ve ever taken out a short-term loan designed for borrowers with low credit scores. 

Many tribal lenders even allow borrowers to apply online. This means you don’t have to be a part of a Native American tribe to apply and receive money. And while the process will likely vary depending on the type of loan and the specific lender, you’ll likely encounter the following steps within the application process:

  • Fill out an application, either online or in person.
  • Await a decision from the lender in question. 
  • If approved, they will provide you with the agreed-upon amount of money. 
  • Your repayment will begin on a specified date. 
  • After all your payments have been made, the agreement is complete. 

How Do You Get One?

You can get a tribal loan by either applying online or in person. Many tribal lenders now offer loans online. Although it will depend on the specific lender, to get one, you’ll most likely need a few things: valid identification, proof of income, a checking account, and other financial information. 

The application process will likely be similar to other loans like personal installment loans, online payday loans, and more. However, the critical thing to remember is that finding a reputable and trustworthy lender is of the utmost importance. 

Will They Check Your Credit?

Much like any other type of loan, this will likely depend on the specific lender. Some may need to run a credit check, and some may not. Although, it’s essential to understand what it means when a lender checks your credit. 

If a lender isn’t interested in checking your credit, it might be a red flag. Checking a borrower’s credit usually means that the lender is interested in getting their money back on time. If a lender doesn’t run a credit check, it might mean that they make more money on late fees and rollover than borrowers who pay on time. Most credible and trustworthy lenders will want to check their borrowers’ financial histories. 

What Happens If You Can’t Pay It Back?

Failing to pay back a tribal loan will likely be similar to failing to pay back a payday loan or any other type of loan. Defaulting on a loan leads to additional fees and interest, loan rollover, and could potentially lead to garnished wages. 

Many payday lenders, and some tribal lenders, may use something called “rollover.”

Loan rollover is when the lender extends your loan term, allowing you more time to repay the initial loan while also adding more fees and interest. Rollover can make it challenging to repay the loan, as it tends to lead to a cycle of debt that’s difficult to escape. This can even lead to multiple payday loans at once. And you don’t want to have to pay off multiple payday loans.

What to Watch Out for With Tribal Lenders

The biggest thing to watch out for when dealing with tribal loan lenders would be tribal payday loans. Any payday loan should only be used as an absolute last resort. They tend to come with very high interest rates and short repayment terms. 

If you need to use a payday loan or tribal payday loans, make sure to very carefully review the loan agreement. You must be aware of all the fees and terms before signing the loan agreement. And it’s wise to avoid any loan unless you know that you can repay it on time. 

What Are the Benefits?

The main benefit of tribal loans would be the same benefit that payday loans offer: fast cash.

Many borrowers with low credit scores have difficulty being approved for traditional loans from banks or credit unions. If this sounds like you, and you’re dealing with a financial emergency, then payday loans, tribal loans, title loans, or credit card cash advances may sound like helpful options. 

If you’re positive you can repay them on time, they might work for you. The problem is that these options tend to be expensive and difficult to repay. But many borrowers ignore the downsides in favor of quick cash. This is because many of these lenders can offer cash the same day you apply. 

The Difference Between Tribal and Payday Loans

Tribal loans are simply loans offered by Native American-owned lending institutions. Some might offer tribal payday loans; some might offer online tribal installment loans, mortgages, or other financial products. 

This means there may not be any difference at all. It just depends on what type of loans that specific lender offers.  

What Are Payday Loans?

It’s essential to familiarize yourself with payday loans and how they work. 

A payday loan is a short-term, high-cost loan option that offers fast cash to borrowers in need. Many borrowers who use payday loans don’t have any other options because they have poor credit histories and credit scores. 

Fast payday loans tend to offer small amounts of cash that need to be repaid within only two weeks or by the borrower’s next payday, hence the name. Along with short repayment periods, they also carry very high interest rates. This makes them very difficult to repay on time. 

Should You Get a Tribal or Payday Loan?

Tribal loans may offer quick cash, but it’s crucial to weigh the pros and cons of any loan agreement before signing it. 

Generally, it’s not financially wise to take out a payday loan since they come with such high interest rates. Payday lenders sometimes use predatory tactics like hidden fees to make more money from borrowers. 

If you’re considering tribal lenders that offer loans with decent interest rates and favorable terms, then go for it! But we wouldn’t recommend any type of payday loan. 

Other Loans for Bad Credit

There are usually better alternatives to a payday loan. Many online lenders now offer personal installment loans, and some tribal lenders might also offer them. These financial solutions are usually much safer than traditional payday options. 

Personal Installment Loans

A personal installment loan is a loan that the borrower will repay over time through monthly payments or “installments.” These options offer more money to borrowers and more extended repayment periods. Paying off personal installment loans over time in smaller payments can make them much more manageable than payday options. And if you pay on time, some installment loans may even help your credit.

Credit Union Loans

A credit union is similar to a bank, but it’s a nonprofit organization. This means that its members technically own it. Credit unions also offer a much more customer-centered approach to lending and financial services. 

To become a member, you would need to meet specific requirements. You may qualify for membership based on where you live, the church you attend, your job, or where you go to school. And if you do qualify, you might gain access to better interest rates and terms than traditional banks. Some credit unions may even work with you with a poor credit score. 

Mastering Your Finances

No matter what type of loan you’re considering, it’s essential to focus on improving your credit score and becoming debt free. There are many ways to do this, including learning to budget properly, saving money, and expanding your financial knowledge. And all of these things can help you improve your credit score and qualify for lower-interest loans in the future. 

If you’re currently struggling with your credit score or finances, the CreditNinja Dojo may have some resources to help. Check out the rest of our blogs, facts about credit scores, and financial tips to learn more! 

5 Things to Know About Tribal Loans | CreditKarma
What Is a Tribal Loan? | MoneyLion