For many underserved communities without access to traditional banks and conventional forms of lending, alternate financial services can provide a means through which these communities can have the same monetary assistance services afforded to others. Tribal installment loans are provided by the Native American Financial Services Association (NAFSA), which gives Native communities access to short-term credit solutions.
Tribal installment loans are short-term personal loans that borrowers pay back in installments within a defined amount of time. These short-term, small-dollar credit loans differ from cash advances in the form of payday loans in that they do not roll over and that the debt repaid goes toward the principal amount taken out, rather than towards the interest. This form of lending may help to keep borrowers out of a cycle of debt in which they may need to take out additional loans to pay back prior ones. The NAFSA currently provides credit to more than 54 million Americans across the country.
Tribal lending installment loans can provide a short-term solution for those facing emergency cash needs or unforeseen monetary expenses. Loan amounts can range between $500 to $2,000 and consumers can use them for urgent and daily costs that may arise. These include:
Eligible consumers 18 years and older can apply for a tribal installment loan. To be considered, applicants will need to meet a few requirements and provide the following information. These include:
Applicants do not have to live on a reservation to be eligible for a tribal loan. Some lenders may also require that potential borrowers have an average period of prior liability of no more than two months. Borrowers should note that tribal loan requirements can differ from lender to lender.
Tribal installment loans are geared towards underserved communities, and therefore, those with poor credit history are still eligible to apply. While tribal loans are not ‘no-credit-check’ loan options, NAFSA may be able to offer financial support to individuals and families who are struggling monetarily. Consumers with poor credit or poor debt-to-income ratio can apply for a loan and see if they are approved.
Short-term installment loans can carry high-interest rates that can make it difficult for consumers to pay back their loans. In fact, research has shown that every year, the roughly 10 million borrowers that take out installment loans ranging from $100 to more than $10,000, pay more than $10 billion in finance charges. Such high-interest rates can trap borrowers in a cycle of debt and financial strain.
To help prevent against such predatory lending practices, NAFSA has consumer protections in place. Before receiving a loan, lenders must inform consumers of the exact repayment schedule, amount of every payment, repayment options, and all APR charges and conditions. Lenders are also required to provide the proper means for borrowers to file complaints and disputes, if they should have any.
Despite such protections, the government has no legal authority to hold tribal lenders accountable for any predatory practice, and therefore, borrowers should take caution upon selecting the appropriate lenders for them.
Borrowers should note that some states have banned tribal lending. States such as New York, Pennsylvania, Georgia, and New Mexico prohibit short-term loans and usury and APR caps. Residents should be informed of the rules and regulations associated with tribal lending in their state before applying for one. Borrowers should only opt for lenders who are licensed under NAFSA.
Larger sum installment loans can provide more flexibility than payday loans. A 2018 PEW study showed that installment loans might offer more affordable monthly payments than other short-term loans do. Indeed, they found that approximately 85% of installment loans take up just 5% or less of borrowers’ monthly income. Further, borrowing a $500 consumer loan for a few months can be three to four times less expensive than opting for other credit options or lenders.
Plus, borrowers who are able to pay back their loan amounts on time may be able to improve their credit standings. And lenders can also earn a profit on paid loans in a fair manner that is not contingent upon borrowers’ inability to pay back loan amounts and interest, as can be the case with certain short-term loans.
Some tribal lenders in the market that borrowers can look into are:
NAFSA was formed in 2012 to represent the financial needs of Tribal governments and tribal-owned businesses. The organization advocates for the financial sovereignty of tribal communities, meaning that they provide services that promote financial literacy and economic independence.
Unfortunately, statistics show that the Native American population has lower financial literacy compared to the national average. Indeed, 87% of high school seniors received failing scores in financial literacy compared to 62% among other populations, according to a 2018 study. Plus, only 29% of Native populations had been exposed to financial education, and even less (22%) had been involved in monetary education programs.
And in terms of loan approvals, indigenous groups get denied at higher rates than the general population. For example, between the years 1992 and 1996, Native Americans living on federal trust lands received a mere total of 91 home mortgage loans that totaled $5 million in value, compared to the $785 billion that was awarded to the general U.S. population in 1996 alone.
In this way, tribal loans are tools through which tribal members can take ownership of their financial development. Tribal installment loans can be a viable resource for those from the indigenous community who may find it more difficult to turn to banks or credit unions for traditional loans.