Dreaming of swaying palm trees and fruity drinks topped with tiny turquoise umbrellas, or escaping to a ski villa up in the mountains? Ugh, us too. But while many of us would love to own a vacation home in our favorite destination, the expense is not always feasible. Because we can’t all own multiple properties, vacation timeshares continue to be a popular choice for travelers who want more space, amenities, and “a place to call home” at their locale of choice.
The average price per interval of timeshares in the United States is around $20,000 . This figure can vary widely depending on the location, the size and quality of the property, the length of stay, time of year, and the rules of the contract. This figure also might not reflect additional costs like annual maintenance fees and other costs, like property taxes.
If you’ve done your research and decided you want to buy a vacation timeshare, you need to make sure you’ve explored all of your timeshare financing options. And remember, sometimes the first option presented to you isn’t the one that will best suit you. Let’s start by taking a look at how timeshare financing works and discuss a few alternative ways to finance a timeshare that might work for you.
How to Finance a Timeshare
If you’ve ever been to a resort at a destination location, you’re probably familiar with the timeshare sales pitch. The developer of the resort will typically lure you in with a free dinner in the hopes of wooing you into buying a timeshare on the spot. If you do not have the ability to pay upfront, they might offer you a loan.
It is generally easy to get approved for a timeshare loan when offered on-site, but beware: These often come with very high interest rates, especially for buyers with lower credit scores. The American Resort Development Association (ARDA) reports that even the average interest rate on a timeshare loan is 14% over 10 years, with rates reaching as high as 20%. Because sales agents want to make a sale on the spot, they may try to convince you to refinance the loan later.
Think of a timeshare like you would any big purchase—a car, a furniture set, or even a home. There is usually more than one way to finance large expenses, and it’s always a good idea to consider your options.
Timeshare Financing Options
Home Equity Loan
If you have equity built up in your primary home, it may be possible for you to obtain a home equity loan from a private lender to purchase a timeshare. Because that type of loan uses your house as collateral, it is likely that you will be given a lower interest rate compared to the rate on a timeshare loan offered at a developer pitch. Additionally, the interest you pay may be tax-deductible. The drawback is that you’d put your primary home at risk if you were to default.
It is possible to charge a timeshare to a credit card. The card must have a high enough limit to process the transaction and the interest rate on the card is not higher than any other loan. Be careful and read the terms of your credit card before proceeding: Even one late or missed payment could subject your balance to an extreme interest rate hike.
Borrowing From a 401(k)
Borrowing money from a 401(k) can be an option available to those who have one. This route is slightly more complicated, so make sure you fully understand both the benefits and the risks. Possible Benefits? Interest rates for 401(k) loans are not determined by your credit history and are therefore seen as a good option for those with less-than-ideal credit. Possible Risks? You should factor in the missed opportunity cost on investment returns for retirement, possible tax implications, and some plans have the potential to incur penalties if you do not pay the loan back within five years.
Unsecured Personal Loan
One more option to consider is obtaining a personal loan from a bank or an online lender. While Interest rates for personal loans are usually higher than rates for home equity loans, you’d probably still be offered a lower rate than the ones being offered by the timeshare sales agent. Additionally, with an unsecured personal loan, your primary residence is not at risk in the event of default, and securing an unsecured personal loan is generally a simpler process than qualifying for a home equity loan. Online lenders, in particular, offer very competitive rates for personal loans and are streamlining the process as much as possible.
SoFi offers low interest personal loans starting at rates as low at 5.49% (with AutoPay).
SoFi Lending Corp. is licensed by the Department of Business Oversight under the California Financing Law, license number 6054612. NMLS #1121636. Terms and conditions apply; see SoFi.com/eligibility for more information.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.