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Tribal loan: What is it and how does it work?

are tribal loans legal

In the US, some big lenders might take advantage of people with low credit scores, which is called predatory lending. Instead of traditional loans like credit card debt consolidation or home equity loans, some people might consider tribal loans, which don’t need collateral or security. But it’s crucial for folks looking into tribal loans to find a trustworthy lender to avoid problems.

What is a tribal loan?

Tribal loans are legal and are a type of loan given by a bank or financial institution located in a Native American reservation or for Native Americans living there. They’re sometimes referred to as Indian loans or reservation loans. These loans have been around longer than predatory lenders, who take advantage of people with low credit scores. The key difference is trust. Because they have been a part of the community for a while, tribal loan lenders are a part of a bank or other financial institution that is well-respected by both the community and the borrowers.

Tribal Sovereign Immunity

Tribal loans go to tribal courts, not state ones. These courts deal with cases where Native Americans owe money to other Native Americans or tribes. To avoid such situations, it’s best to only borrow from people you trust who won’t take you to tribal court. Tribal sovereignty also means tribes can take legal action against non-members within their area. This means if someone borrows money and doesn’t pay it back, the tribe could take them to tribal court to get the money back.

They might also have to follow state laws on interest rates and offer better repayment terms. Recently, some states and the federal government have stopped online tribal lenders from using tribal sovereignty to escape rules. These lenders, posing as tribal, threaten customers and profit from high-interest loans. In 2019, Washington state decided online tribal lenders must follow state laws on interest rates and licensing, or they could be sued.

Some Facts About Tribal Loans

Now that we’ve covered the basics of tribal loans, let’s tackle some common questions about them.

Meant for short-term use

If you need money fast, tribal loans may not be your best option. They often take longer to pay back than other loans. You might have to wait a while to update your financial info and get the loan approved. Even though “longer repayment periods” might sound like years, it’s usually around a year.

But because the interest rates are high, it’s tough to pay back on time and you might end up with extra fees. Make sure to research the lender and confirm that they are under state or federal regulation before making a decision. Also, compare how frequently they can lend you money compared to payday loans.

High-Interest Rates

The interest rates on tribal loans can be high, and the federal government’s loan programs don’t cover them, which makes it hard to get one. Some online tribal lenders might say they don’t check your credit, but be careful. Many of these lenders are dishonest and use fake claims about tribal laws to hide. They might charge high-interest rates, up to 800% APR, so be careful!

Credit Checks

Lots of tribal lenders check your credit when you apply for a loan from them. They typically like to lend to people with poor credit or no credit history. This can be hard for someone who always pays back loans on time.

Longer Processing Time

If you choose to get a tribal loan, it’s best to do it at least two or three months before you get paid again. It takes time for the tribe to process your application and approve it, and for you to get the money you need.

What if you fail to pay your tribal loan on time?

Some states, such as Washington, are cracking down on online payday lenders who falsely claim tribal sovereignty to avoid laws. But if you don’t pay back a legitimate tribal lender, they can still sue you and take you to court to get their money back.

Understanding the Ins and Outs of Tribal Loans is Necessary

If you’re considering tribal loans, it’s crucial to understand their implications and risks. Tribal loans might offer quick cash without collateral, but they often come with high-interest rates and longer repayment periods. Be careful of lenders who might try to take advantage of you, and always do some research before agreeing to any loan. Remember, tribal loans aren’t always the best solution, and it’s essential to explore all your options carefully. Don’t hurry to borrow money; take your time to think carefully and choose the best option for your money situation.


  • RJ Sinclair

    RJ is our resident money guru, with a knack for keeping finances neat and organized. With previous experience as a budget manager in supply chain companies, he brings a wealth of knowledge and expertise to the table. Count on RJ as a trustworthy source for valuable money tips and advice to help you make the most of your financial journey.