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How Timeshare Financing Works for Vacation Property

January 22, 2018 · 6 minute read

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How Timeshare Financing Works for Vacation Property

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.

Timeshares are still a popular way to vacation, and there are savvy ways to finance a timeshare. In fact, according to the American Resort Development Association (ARDA), 9.2 million U.S households own a timeshare. And some even own several timeshares.

So, are timeshares a good idea? It depends on how you think about it. If you’re looking for a vacation spot you can use whenever you want, you are likely in for an expensive disappointment. But if you’re looking for a vacation spot you can come back to time and again in your favorite location, it might make financial sense.

Staying in resorts and eating out can get expensive. Buying a vacation home can be even more expensive. If you understand that you’re purchasing a timeshare not as an investment but as a vacation experience—to spend time with family and friends, it may actually be less costly and less stressful than other vacation options.

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.

Choosing a Vacation Home

When you purchase a timeshare, you’re sharing the property with a number of other timeshare owners and typically have the right to use the property at the same time every year.

You can trade days with other owners and sometimes even try out other properties around the country (or around the world) in a trade. In addition to the initial purchase price, you’ll also be required to pay your share of the maintenance fees that cover the costs of property upkeep and cleaning. These maintenance fees often increase over time.

Once you’ve considered the financial responsibilities that come with the timeshare and your budget, choosing the right place often comes down to where you want to be, and what you need in terms of space and amenities.

Since selling a timeshare can be difficult and sometimes involve a financial loss, you’ll want to make sure you’re purchasing a timeshare in a place that your family will want to return to for a long time—and can easily get to. That way you don’t end up paying for a place you don’t use.

Preparing Financially for a Timeshare

A good financial scenario to be in when buying a timeshare is to have a steady income that will allow you to keep up with maintenance fees and travel to your timeshare each year. If you plan to finance the purchase, look over your financial profile and creditworthiness.

Your income, creditworthiness, the term of the loan and other factors, will determine the rates that lenders will offer you. Resolving any issues impacting your credit score may help improve your financial profile.

You’ll also want to consider your budget over the next few years. Are there any other major purchases you are planning to take on? Do you anticipate a new added cost like a new family member? Any type of financial shift in coming years should be accounted for before you finally sign on.

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.

When you buy a home, you typically finance it with a mortgage. When you buy a car, you can finance it with an auto loan. But there’s no direct lending market for timeshares, and on top of that, they usually don’t increase in value over time.

So what are your timeshare financing options? First, let’s look at how not to finance a timeshare. The first option most interested buyers are faced with is developer financing.

Typically, a timeshare resort developer works with a lender that offers high-interest personal loans, and they encourage you to make a decision right away while you’re at the presentations. According to ARDA, buyers pay an average of $20,000 for a timeshare interval, though prices can range from depending on the property.

Developer financing is often proposed as the only timeshare financing option, especially if you buy while you’re on vacation. Another option, however, is to plan ahead. If you’re ready to purchase a timeshare, secure financing beforehand so that you have the funds in hand when you negotiate the sale.

This way you have time to shop around for a good financing deal—and possibly save up some money to put toward the purchase as well.

There are a few alternatives to financing a timeshare with financing offered by a developer. Of course, you can wait and save up the cash to purchase the timeshare outright. If you’re looking to finance the purchase, there are still several good 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. There’s more red-tape and risk as you’re putting your home on the line. Home equity loans are typically used for expenses or investments that will improve the resale value of your primary residence.

Credit Card

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.

This option should be used if you are putting most of the purchase price down in cash up front and just need to put the last little bit on a credit card. You should also only do this if you are certain you can pay off the remainder in a relatively short amount of time.

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.

Deciding to borrow from your 401k can have a lasting impact on your finances, so be sure to research your options and possible effects.

Unsecured Personal Loan

One more option to consider is obtaining a personal loan or vacation 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.

Timeshares are often thought of as a way to guarantee vacation time in your favorite location each year without having to buy a second home. If you do your homework and weigh the risks, they can be a good way to vacation with family and friends and make a lot of memories along the way.

Thinking about using a personal loan to finance a timeshare? Check out SoFi to check your rate in just a few minutes.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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