How To Finance A Timeshare Loan

Posted on April 14, 2021 in Investing

If you have been dreaming of sandy beaches and fruity drinks that you can escape to whenever you please, a timeshare may be right for you. However, when you consider the fact that the average price per interval of timeshares in the United States is around $20,000, figuring out how to pay for said timeshare can seem a bit overwhelming. In this guide, we will go over everything you need to know about financing a timeshare loan.

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Where to Buy a Vacation Home

The best thing about timeshares is that there are endless options to choose from. The best place to buy a vacation home depends on your unique needs and desires when it comes to amenities, weather, activities, and the size of your family. This step is very important because a timeshare is a big investment, and you want to get the most out of it. So, take some time to do your research and find the location that will best fit your needs so you don’t end up spending a lot of money on a place you will never use.

How to Afford a Vacation Home

When you buy a timeshare, you are sharing the property with other timeshare owners who also have the right to use the property when they choose to. You can trade days with other owners and even try out different properties around the world. In addition to the purchase price, you also have to pay your share of maintenance fees to cover property maintenance and cleaning.

How to Finance a Timeshare

If you plan to finance your timeshare, it’s important that you have good credit, and loan terms that fit your financial situation. We recommend resolving any large debts before applying for your timeshare loan to increase your odds of being approved for the amount you are seeking. It’s also a good idea to consider your budget over the next couple of years. Are you planning on making any other significant purchases? You must account for any major financial shift forthcoming.

It is actually quite easy to get approved for a timeshare loan, especially when it is offered on-site. But, you must be aware that these loans come with high interest rates—especially if you have a low credit score. According to The American Resort Development Association (ARDA),the average interest rate on a timeshare loan is 14% over ten years, with some rates reaching as high as 20%. Since salespeople want to make a sale right on the spot, they may convince you to refinance the loan at a later date.

For the purchase of a home, you typically finance with a mortgage or an auto loan for a car purchase, but there is no such direct lending market for timeshares. So, what are you to do? First, let’s talk about what not to do.

Developer financing is when a timeshare resort works with a lender who offers high-interest personal loans. They will encourage you to make this decision during the presentation. The sales agent will often propose developer financing as the only option to finance your timeshare, especially if you are making the purchase at the resort. The best move is to secure timeshare financing ahead of time so you have the funds in hand as you negotiate the sale and can avoid feeling forced into bad financial decisions. This also allows you to shop around for the best financial deal, which will end up saving you heaps of money in the long term.  

Ways to Get Timeshare Loans

Now, let’s go over other options for timeshare financing besides a developer loan. 

Home Equity Loan

If you have equity built up in your home, you may be able to obtain a home equity loan from a private lender or bank to buy your timeshare. Since these loans use your home as collateral, you will likely be able to secure a lower interest rate than a developer loan. What’s more, the interest you pay might even be tax-deductible. 

Personal Loan

Another timeshare financing option to consider is a personal loan from an online lender or bank. Interest rates and terms for personal loans are typically higher than home equity loan rates. But, you will likely be offered a rate lower than the loan the timeshare agent will offer you. What’s more, with an unsecured personal loan, your primary home is not at risk in the event of default. Also, securing a personal loan is a much easier process than qualifying for a home equity loan. Online vendors offer very competitive personal loan rates. 

Credit card

You can also charge your timeshare to your credit card. Of course, the card needs to have a limit that’s high enough to process the transaction, and you’ll want to make sure your card’s interest rate is not higher than the other loan options. Make sure you fully understand the terms before you proceed because just one late or missed payment can seriously spike your interest rate. A credit card is a good option if you are putting most of the purchase price down in cash ahead of time, and you need to put the remaining portion on your card. You should also only do this option if you know you will be able to pay off the remaining balance in a fairly short period of time.

Types Of Timeshare Ownership

You can’t go into your timeshare ownership thinking you will downright own the property. There are different kinds of timeshare ownership, including:

Deeded Ownership

Deeded ownership refers to timeshares that are a real estate purchase by the owner in which the owner holds a deed to a fractional piece of the timeshare property.

Leased Timeshare

A leased timeshare allows the owner to acquire a right to stay at a property for a fixed or floating week over a set number of years. A leased timeshare is also referred to as a nondeeded timeshare. In the arrangement, the deed stays with the timeshare developer instead of the timeshare owner. The value of these timeshares decreases over time.

Is Financing a Timeshare Right For You?

Ultimately, you are the only person who can decide whether a timeshare is right for you. You must evaluate your current personal finance situation, financial status, and goals to determine what is feasible for you when it comes to timeshare ownership. 

We recommend vacationing at the timeshare location before you make a decision to commit to a purchase and ensure it’s a place you will look forward to going back to year after year.

Can you get a loan for a timeshare?

Yes, you should research the above-mentioned timeshare loan options and determine which is the best fit for you.

Is a timeshare loan considered a mortgage?

Not technically. The U.S. Department of Housing and Urban Development (HUD) classifies timeshare mortgages as installment loans and not real estate loans.

What banks refinance timeshares?

Most banks actually will not refinance timeshare mortgages because the resale value is so low. You will likely have to find a lender that specializes in timeshare refinancing. One bank that does offer timeshare refinance options and mortgages is LightStream— a branch of SunTrust. LighStream will refinance timeshare mortgages for U.S. citizens who have good credit.

How Much Do Timeshares Cost?

There are many factors that go into how much a timeshare will end up costing when it’s all said and done, including:

  • Upfront Purchase Price: This price varies greatly depending on location and amenities.
  • Finance Charge: Unless you are able to pay for your timeshare purchase in cash, you will be subject to steep premiums from the timeshare developer since banks and non-bank mortgage lenders do not finance timeshares.
  • Monthly Maintenance Fees: In addition to upfront fees and financing, you can expect more fees throughout the life of the timeshare, including energy, cleaning, and maintenance costs. These types of monthly payment fees may increase every year.
  • Service Charges: There are also service charges that come with timeshare ownership, from vacation planning fees to penalties. Before buying a timeshare, make sure you fully understand all fees you may be subject to in order to avoid surprise bills and fees that you simply can’t afford.

We hope this helped you better understand timeshare loans and how to finance a timeshare! If you have any questions don’t hesitate to get in touch with our experts.

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