Housing Market vs. Instant Loans

Get cash now, pay in advance, turn your check into cash. You've seen them all before, or maybe even gotten a loan. Lately, with the housing market declining, places like these are getting a bad name.

"They're after the credit card companies, they're after the banks they're after anyone in the financial industry. We tend to be an easier target than the banks because we're not as big as the banks and haven't been around as long," says Jabo Covert Vice President of Government Affairs for Check Into Cash.

Instant loans are a growing business. In fact, one of the largest in the industry, Check Into Cash, started right here in Tennessee. But credit counselor Dan Stevens says the main problem with instant loan companies is the high interest rate.

"Under their normal income they can't afford their house payment. so their supplementing their income with this pay-day loan at 360 percent and it just puts them further and further and further behind," says financial educator Dan Stevens, with Consumer Credit Counseling in Chattanooga.

That may be the case on a national level, but Check Into Cash representatives say in Tennessee that's not true. State law requires all instant cash businesses to report an APR, but not charge interest to customers. They say the highest fee they can apply, is $30.00, which can't get any higher.

"If you pay us off two days early, its thirty dollars, if you pay us off two months late its thirty dollars.That's not what an annual percentage rate is, an annual percentage rate accrues over time and we're not allowed to do that," says Covert.

While they don't agree with them, financial advisors say quick cash loans don't cause mortgage debt, the problem is spending out of your means.

Stevens says Tennessee, Georgia and Alabama lead the nation in bankruptcy because in general people aren't managing their money.

"Buying a house is a big step and if you're ready for it it can be a wonderful thing. But if you're not, it can drag you into bankruptcy," says Stevens.

He says a good rule, whether you are buying or renting, housing should cost no more than 35 percent of your income.

"They end up with not enough money for food, or enough for gas, or enough for the electric bill you name it. You know if there isn't enough income to match the outgo, its gonna be a bad ending," says Stevens.

Check into Cash say their business is for short term loans and with a cap of two hundred dollars, and restrictions on continued lending, they doubt they are part of the mortgage problem.

"We want customers to be educated and make smart choices and they realize that charge that we are allowed to charge is cheaper than their other alternatives," says Covert.