The first thing about this write-up is that it's technically not about tribal loans, it is about there close cousin which is the state licensed payday lenders. The tribal lenders and the state licensed payday loan companies are very similar but they have some differences and those are mainly caused by the fact that tribal companies are exempt from any government oversight.
I should also mention that this story was first published by Bloomberg, I'm using that article as a reference point for my own analysis. And right off the bat I have a disagreement with the Bloomberg article as it cites "consumer groups" as insinuating that there is little or no difference between a payday loan and an installment loans.
While I won't spend to much time defending the installment loan I will say that is certainly better than it's payday cousin. At the same time let's take a step back and remember what real loans were like. A bank used to issue a signature loan that was for $5,000 and $10,000 and the due date on the loan would usually be at least three years away. It seems like a lifetime since we last saw this type of regular (let's read that as truly middle class) loan. So while I will defend the installment loan in the face of the comparison to the payday loan, realize that the installment loan is still a product of our general decay and decline; this product would not and should not exist in a normal, healthy, functioning society.
With that caveat out of the way, let's get back to bashing the crap out of the payday loan industry, especially when the installment loan is a viable option for many of the same consumers that decide (unwisely) to sign-up for a payday lending instrument.
The payday loan is a creepy little financial device that provides almost no time to utilize the money you've borrowed. From the moment you borrow the money to the time you have to repay those funds all you have is roughly 15 or 16 days.
That's not really a loan. If I loan you something it means that you get to use it for the time required to in fact use it. You wouldn't have a library loan out a book for three hours, there's not enough time to read the book. You wouldn't lend your friend a CD and then ask for it back after 20 minutes. The time appropriated by these payday lenders is not sufficient to meet the need of the original purpose of seeking out the loan. And these companies know that and they use this one important facet of their business to make most of their money.
The average consumer that is in desperate need of cash will not have built up any kind of financial reserve in the pathetic 15 days since the loan was issued to be able to repay the full loan. That's the design, because once a borrower can't repay on time they (the borrower) will be forced to take an extension on that loan. By taking the extension the consumer is now just paying the finance charge and will have to extend the loan, which translates to instant profits for the payday lending company.
There are some other problems with the payday lenders, like their extremely high interest rates. A company like United Cash Loans has an APR that hovers somewhere around 780% which is just terrible. So for every dollar you borrow you will be paying another eight dollars by the end of the year. These guys have no soul.
Just for the sake of comparison you can look at a tribal installment lender like Plain Green Loans which has a 59% APR on their six month loans. So for everyone who is trying to say there is no difference between payday and installment lenders, just remember these two figures, 780% versus 59% APR's. There are distinct differences between payday lenders and installment lending firms.
Here's one more problem, which is the amount of money that a payday lender will loan you compared to what the installment lender will loan you. Most payday outfits will only loan around $500 and sometimes even less, there are dozens of firms that won't go over $300. What a joke. There are quite a few tribal installment lenders that will loan $2,500 or $3,000.
Again, for those who say the difference between the two types of lenders is not pertinent, then it seems there is no difference between $300 and $3,000. Not much logic needed to see the value here with the installment lenders. If you need anything that closely resembles the old school loans from the 1990's and 2000's then of course you will go with the installment version.
Overall, there are lots of distinct differences when looking at a Native American payday loan and a tribal installment loan. To lump them into one big mass of 'shor-term lending' financial vehicles is just a mistake. Neither are that good, but the installment loan is much better option than terrible payday lending option.