Here is the newest Native American lender, a company called Majestic Lake Financial and sometimes going by the name MLF Inc. This new tribal lender offers a specialized version of an installment loan that is specifically built to last 20 pay periods, which is a total of 40 calendar weeks. Normally this would be an exciting find as most new tribal lenders offer the very simple (and uninteresting) payday loan models where the full amount of the loan is due in two weeks.
Although on the surface we will call Majestic Lake Financial a tribal installment loan provider there needs to be a quick caveat made here. The interest rate that the MLF loan carries is exactly the same as the average tribal payday lender which is 30% paid on a bi-weekly basis.
So why is this noteworthy or a problem at all?
The problem is that we have come to expect the unfortunate 30% rate from the payday lenders and in a way it makes a little more sense for these truly short-term lenders to charge a higher rate. A payday lender only has (in theory) the one pay period to make their money on the loan and then it is repaid. Since there are not multiple repayment cycles (like an installment loan carries) then the payday lender has to make all their money in 'one shot' so to speak.
Now as a side note we know this isn't technically true because at least half of all payday lenders take out at least one extension on their loan, but let's leave that aside for now. The point is the shorter the loan time frame the higher the interest rate we expect to pay.
Now enter Majestic Lake Financial into the picture. They have a 40 week term loan and that is a good thing. But the bad part of their lending is that they kept that 30% bi-weekly rate in place (as if they were a tribal payday lender) and they charge that steep rate for all 20 of the built-in (bi-weekly) repayment periods. Now you don't have to be a mathematician to know that if you pay the (payday lending) expensive rate of 30% every 14 days over the course of 40 weeks that the loan is ultimately going to be extremely expensive and that's the real problem here, the loan product offered by Majestic Lake is just too expensive in my opinion.
To give Majestic Lake Financial some credit they do not hide this expensive rate, it's readily available on their "How Our Loans Work" section of the "How It Works" tab on their website. The company details the (excruciating) process of taking the 30% bi-weekly repayment over the course of 20 repayment periods. You can see the repayment chart here if you want to see the numbers for yourself.
Notice that the early payments barely push the needle at all in terms of repaying any principal amount of the loan, which is similar to the way a home mortgage works. And then notice the last few payments are mostly paying off the principal amount of the loan.
This is the first tribal lender that has incorporated the repayment elements of the standard U.S. home mortgage into their loan product. The only differences from the home mortage and this tribal lender are that a loan from Majestic Lake Financial is unsecured and it stretches for 40 weeks instead of 30 years. Beyond that the same structure and concepts are in place. It is a set amount of time and the loan (repayment) rates are already established per the company repayment chart, the only thing that would change is the actual dollar figures depending on whether a customer borrowed more or less money.
While we always want to see new installment lenders coming into the picture (we already have way too many of the tribal payday lenders floating around) this is not the type of situation we want to see and definitely not the kind of financial transaction we would suggest you (the consumer) get yourself into.
Another way of saying this is if you were to borrow $1,000 today and repay the installment loan on time, per the laid out dates per the Majestic Lake Financial website, you would be paying the equivalent of 714% APR. And it's even a little worse than that because payments one through 19 are repaid at a rate of 841% APR and due to a little financial maneuvering where the last repayment is all principal it lowers the ultimate APR down substantially to the 714% level. Basically you will repay at 30% flat interest from repayment number one through number 19 and then for the very last repayment you get that for zero interest.
Wow, thanks guys, very generous of you.
The real key here is this new tribal lender just needs to lower their rates. When we look around as consumers and see Plain Green Loans with a 59% APR and we see Mobiloans offering a $1,500 loan with bi-weekly repayments of only 10% interest we realize that Majestic Lake Financial has a great concept with their 40 week loan, the problem they face is that 30% rate.
If they could lower that rate to 10% or even 15% then they would have a winning financial product they could be proud of and market to the public with good results. Let's hope this new company finds their way to a cheaper loan. Ironically, the lower the interest rate goes for Majestic Lake Financial the greater the interest in their offering will be from the consuming public.
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