Here is a simple, two part thought: peer lending needs to grow and tribal lending needs to shrink.
I'm sure there are some tribal lenders (and some tribal lending customers) who are not happy to read those words, but it's true. The problem with tribal lenders is that we now have around 100 companies involved in Native American lending. And despite all these companies there is very little in the way of financial innovation, differentiation, or creativity going on with these 100 firms. It would be as if there were 100 fast food restaurants and 90 of them served McDonalds flavored burgers and 10 served Taco Bell flavored tacos.
That's really how things stand today in Native American lending. About 90 or so firms are involved in the very boring, very limiting, quite useless tribal payday loans. These of course are the extremely short-term loans that range from $100 to $1,000 and carry an interest rate normally around 30% for the 14 weeks the loan is outstanding. Like I said, just useless. And boring. The fact that there are so many companies pushing the same product is just wretched.
Then there are the 10 or so tribal installment lenders who are doing a little bit better of a job when it comes to creativity but they still have a lot of room to grow. Some of these firms, like Plain Green Loans and Spotloan, are very flexible and generally helpful companies. Their interest rates are much better than their payday lending equivalents but that doesn't mean these loans are cheap.
One company does stand out from the crowd, which is Mobiloans. This firm issues a standing line of credit that can be accessed at several different points in time for various dollar amounts. This is the one exception to the creativity question. Most tribal loan firms are just duds when it comes to exploring possible financial products that could be different from the tried and untrue loans that have been boring us for too long, for many years in fact since the 2008 financial meltdown.
For the most part we have nothing to really help us when it comes to Native American loans. They're products can help in the (very) short run, and they are useful to a very limited extent.
At roughly the same time that tribal loans were gaining traction and popularity another type of loan was also gaining strength and some well deserved notoriety. Those are the peer loans, also known as peer to peer lending or sometimes P2P lending, all of which mean the same thing. These are loans that are arranged for and conducted by a peer lending company, but the funding of the loans is done by other people.
The origination of the loan funds comes from people who are investing their money (looking for a return on the interest paid on the loans) into these peer loans. So through these peer lending firms people are lending money to other people.
That's a great idea and it has been working well in the short time that they've been around. There are currently two big players in the peer lending arena, and they are Lending Club and Prosper. Both of these firms help to manage and facilitate loans, but they don't do any lending on their own. The funds come from people who have signed-up specifically to provide the funds to do the lending. Prosper and Lending Club pay for their business through fees that are charged to the borrower.
The only problem that is holding peer lending from completely dominating (and frankly rendering other online lenders obsolete) is the fact that they require their borrowers to have pretty good credit. These firms aren't willing to risk the money of the people who have agreed to loan funds, and that makes sense.
If the lenders kept getting burned by bad borrowers who only partially repaid their debt or walked away from the debt entirely, or kept paying late on the loan, then it would eventually ruin the entire structure. The people funding would lose faith in the borrowers.
That's really unfortunate because if there was a way to get more borrowers together with more lenders, and get more people away from the outlandishly high rates that tribal loan companies want to charge people, then it would create an all around better financial picture for the country.
The borrowers would be happy because they would have access to more capital for a lower overall cost, due to the much lower rates being charged on peer loans. Meanwhile, the lenders would be happy because rather than earn the 1% pathetic interest rate they are currently getting through their cheap bank, they could actually earn a decent return from the borrowers who are paying anywhere from 8% to 20% for their peer-based loans.
If it sounds too good to be true, well in a sense it is. There are too many unreliable, troubled and financially haggard borrowers out there to count on to make steady, on time repayments to their debts.
The problems would start early and keep growing, and more of the peers who are contributing the loaned dollars would start pulling back. But it's not a bad idea to keep trying to push more lenders and borrowers into this type of lending.
It's a win-win situation for everyone involved and it gets consumers away from the terribly high rates that the tribal lenders just insist on charging. Some Native American lenders are charging APR's upwards of 800% or more. Ameriloan is one of those guilty parties, you can read some of the substantially negative reviews about this company and you can find endless complaints about tribal lenders in general all across the net.
Tell your friends and family about peer lending. Advise them to look-up the companies called Prosper and Lending Club, especially if they are using payday loan shops or tribal-based lenders, then they it's really in their interest to find out more about these new (and yes, improved) lending companies.
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