Financing Timeshares

A vacation home sounds delightful, doesn't it? If you can't afford one, you may be able to at least afford a part of one – by purchasing a timeshare.

You'll have plenty of company if you do. The American Resort Development Association (ARDA) reports that timeshare sales have risen for eight consecutive years, reaching $9.6 billion in 2017. The average timeshare occupancy rate reached 81%.

Typically, timeshares are not financed like traditional secured home mortgages, due to valuation and reselling difficulties. If you can't afford to pay cash, how do you finance your timeshare?

Developer Loans – Developers have incentive to provide you a loan on the spot – they can give approval and close the deal quickly. However, the interest rates may be high. ARDA reports an average timeshare loan rate of 14% for a ten-year loan, with higher rates for buyers with poor credit. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

Home Equity Loan – You can use the equity in your home to purchase a timeshare, and probably receive a low interest rate since the loan is secured. However, you put your home at risk if you default on the loan. Before taking this path, make absolutely sure you can handle the timeshare payments.

Personal Loans – Some lenders offer personal loans tailored to the timeshare market. Interest rates shouldn't be as low as with a home equity loan since the loan is unsecured, but they are likely to be lower than developer offerings. As with other loans, rates will vary depending on your credit risk.

If you accepted a developer loan at a higher rate, you may be able to refinance with a lower-rate personal loan and save on interest costs over time. Explains LightStream Senior Vice President Todd Nelson, "Buying a timeshare is often an in-the-moment decision, where buyers accept the financing offered at the sales office and close the deal. In fact, the interest rates they agree to can be much higher than what they may be able to find elsewhere. With LightStream, buyers with good credit can apply online for a timeshare loan in just minutes, and can be approved quickly at a much lower rate, with no additional fees. Funds are deposited directly into their bank account. They simply pay off their existing timeshare loan and repay LightStream at the lower rate."

Credit Card – With a high enough credit limit, you can put your timeshare on plastic. You may be able to reap plenty of rewards points, but is the interest rate favorable? The average credit card APR is almost 17% – well above most loan options.

Borrowing From a 401(k) – Borrowers with lower credit scores and few options may be able to borrow against their 401(k) plan, since credit risk is not a factor – if you don't repay, you're only harming yourself. However, even if you repay the loan you're missing out on the effect of compounding interest on the borrowed amount.

You're better off considering financing options well before any face-to-face meeting. Research timeshare listings in your preferred area so you know how much money you'll need to borrow. Look into the interest rates and costs of your financing alternatives before you meet with timeshare sellers.

You'll know if their proposed interest rates are reasonable – and if you're serious about buying from that seller, you can make a counterproposal. They may refuse, but at the very least they'll know that you've done your research and will treat you accordingly.

When you assess the affordability for a timeshare, think about auxiliary expenses as well – and not just association and maintenance fees. According to data published by the American Resort Development Association, timeshare owners and their guests spent an estimated $7.23 billion in 2017, with $4.35 billion of that spent off-site in the surrounding community. Don't stretch your budget so much that you sit around in your expensive timeshare all day because you can't afford to do anything else while you're there.

A timeshare can be an enjoyable asset but treat a timeshare purchase as a form of real-estate transaction even though no mortgage is involved. Give the same care and thought to your timeshare financing that you would with a traditional mortgage, and you'll get the most out of your vacation home experience.

You'll need good credit to finance a timeshare. To check your credit score and read your credit report for free within minutes, join MoneyTips.

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