Need to finance a timeshare purchase? Here's how....

[Dave M]

I'm not about to recommend financing a timeshare purchase, because I don't think it's a good idea to do so. Still, there are some who decide to buy a timeshare with a plan to borrow to finance the purchase.

There aren't many financing alternatives. Banks and other traditional lending sources won't touch a timeshare loan because of the small amounts and big risks.

There are six ways that I know of to finance a timeshare purchase, listed below in order of preference. #3 is a relatively new option, which I have not previously seen discussed here at TUG.

1) Pay cash. That's the overwhelming recommendation from most TUGgers.

2) Borrow on your home by refinancing your mortgage or taking out (or extending) a home equity loan. The interest rate will be relatively low and the interest will normally be tax deductible.

3) Borrow at one of the online person-to-person lending sites. You insert the amount and reason for the loan. You authorize a credit report so that investors (those who would loan you the money) can get your credit score. You’ll also provide as much info about your financial situation and your employment history as you are willing to share to entice lenders to give you a low rate of interest. Some sites require a minimum credit score to seek a loan. You might get an investor to offer a rate as low as 7%-10% if you have great credit and other good info that indicates to potential investors that you are a good credit risk. Poor credit can mean an interest rate of 15%-17% or more.

These loans are unsecured and, thus, the interest will not be deductible for tax purposes.

Person-to-person lending sites include Prosper (minimum credit score of 520) and Lending Club, (requires minimum credit score of 640 and debt-to-income ratio - excluding mortgages - of less than 20%). For more info on this topic and other similar sites, Google “person-to-person” (with the quotes) and lending.

4) Borrow from Tammac Financial, which is set up specifically to make timeshare loans. Current interest rate is a very high 12.5% and the interest is not deductible.

5) Buy from a developer and finance through the developer. Obviously this is one of the last choices, since you pay way more than necessary for the timeshare and pay a very high rate of interest. Also, since most timeshare loans are written as consumer loans, not mortgage loans, the interest is generally not tax deductible.

6) Play the game of getting a credit card with no interest or low interest on balance transfers and keep rolling the balance over to similar new credit card accounts. I list this last because it has some expensive risks (e.g., high interest, late payment penalties, credit score deterioration) if you make a mistake. Playing this game is not for the faint of heart!

For those interested in investing in person-to-person loans (see #3 above), I encourage you to read the article on this subject (“Options Grow For Investors To Lend Online”) on page D-1 of the July 18, 2007 Wall Street Journal. Some of the sites, particularly Prosper, have some good online tools to assist lenders in evaluating loan applicants. Lending Club investors can get recommendations for a loan portfolio based on risk tolerance and other factors. Investors can usually take part or all of a loan. Most investors have a portfolio of such loans (e.g., $30,000 spread over 350 loans for one Prosper investor) to spread out the risk.

 

[Denise L]

I confess I fall into the #6 category , and it is definitely not for the faint of heart. My sister just bought a new car this way and I had to make sure she understood the penalty for missing a payment.

On the other hand, I've enjoyed my timeshare weeks and plan to pay off the 0% cards as quickly as possible. The problem is I just bought another one ...

 

[Jya-Ning]

Add 3 more

1) if you have a whole life insurance, depends on the cash value, you can borrow it out.

2) if you have brokerage funds, and it can borrow margin, you can take money out even if you don't have cash. But this is very risky. It usually better to sell the stock/mutul fund/bond/CD and pay cash back. The margin rate is usually tie to prime rate.

3) If you belong to some credit unit, sometimes they will give out the personal loan especially during holiday season (so you can buy more stuff). They rate is usually very attractive.

Also, some of the credit card charge the transaction fee to start with, so 0% half year may equal like 6% in fact.

Jya-Ning

 

[gmarine]

Add 3 more

1) if you have a whole life insurance, depends on the cash value, you can borrow it out.

2) if you have brokerage funds, and it can borrow margin, you can take money out even if you don't have cash. But this is very risky. It usually better to sell the stock/mutul fund/bond/CD and pay cash back. The margin rate is usually tie to prime rate.

3) If you belong to some credit unit, sometimes they will give out the personal loan especially during holiday season (so you can buy more stuff). They rate is usually very attractive.

Also, some of the credit card charge the transaction fee to start with, so 0% half year may equal like 6% in fact.

Jya-Ning

Regarding number 2, you can use a margin account to buy stock if you dont have the cash in the account to do so. However, you cant use a margin account to just withdraw funds for other uses.

 

[davesdog]

Regarding number 2, you can use a margin account to buy stock if you dont have the cash in the account to do so. However, you cant use a margin account to just withdraw funds for other uses.

I have a Scottrade account, and yes you can just write a check for anything!

 

[oneohana]

I confess I fall into the #6 category , and it is definitely not for the faint of heart. My sister just bought a new car this way and I had to make sure she understood the penalty for missing a payment.

On the other hand, I've enjoyed my timeshare weeks and plan to pay off the 0% cards as quickly as possible. The problem is I just bought another one ...

Count me in too!!! If they are willing to give away free money, why not play their game. Just don't let them win.

 

[ladycody]

There are also a few (very few) credit cards that will offer you an extremely low interest rate for balance transfers until paid off. The problem is that you need to check out how the interest is figured...because it may be higher than it appears.

If credit card roulette or low-interest-until-paid-transfer option is chosen...or if you already have an equity line or re-fi available to you and know you'll be able to use these options in the first month after purchase...then I recommend paying initially with a mileage or cash back awards card and then transferring the sum into it's more permanent home.

Just a few random thoughts.

 

[gmarine]

I have a Scottrade account, and yes you can just write a check for anything!

I forgot that some companies will indeed let you write a check against some marginable securities. Thanks for the correction.

This should never be considered as a way to purchase a timeshare. If the value of the securities in the account was to fall below a certain level the account holder would be forced to come up with the additional money. Its very risky and shouldnt be considered.

 

[Jya-Ning]

Its very risky and shouldnt be considered.

Agree, it is very risky. On the other hand, I know Redskin owner when he bought the football team is using the bond he has as security and get a loan at very attractive rate. So I know if you have very good quality high yield bond only, it actually not a bad case.

Jya-Ning

 

[johnmfaeth]

Many employers will let you borrow money using your 401K as collateral.

 

[gmarine]

Many employers will let you borrow money using your 401K as collateral.

Borrowing against your 401K should never be done unless absolutely necessary for a major necessity like a home. Even then it isnt a very good idea.

Besides slowing the growth of your retirement fund another pitfall to consider is this. If you were to leave your job on your own terms or get laid off you must pay the entire balance within 60 days or the remaining balance is hit with a 10% penalty and you will have to pay taxes on the amount in that year.

 

[gmarine]

Agree, it is very risky. On the other hand, I know Redskin owner when he bought the football team is using the bond he has as security and get a loan at very attractive rate. So I know if you have very good quality high yield bond only, it actually not a bad case.

Jya-Ning

Your comparing a billionaire to timeshare buyers?

I am a huge football fan and follow the Redskins pretty intently. When Snyder bought the Skins he had a company worth about $2 billion which he sold after he bought the team. Quite a bit different than the average timeshare owner.

 

[johnmfaeth]

Hi gmarine,

When my wife worked for Canadian Imperial Bank of Commerce in NYC in the late 80's we borrowed $5K for a home computer setup (we were both computer types back then).

The principal of the 401K was never touched and grew unmolested. We paid prime rate and the payments came out of her check. If she left, she just had to leave the 401K with their trustee until it was paid off.

Meanwhile the computer was one of the first 386's available that I got at a big discount as I worked for a software company that was an AST partner.

It was an incredible deal all around.

 

[BocaBum99]

There's another one which is seller provided financing. Some sellers will take a deposit and take monthly payments until it's paid off.

 

[dioxide45]

Many employers will let you borrow money using your 401K as collateral.

Never, never, never, take a loan out from your 401k. Even to pay off debt in a crisis. You are signing up for double taxation and in the event of bankruptcy the 401k can't be touched by your creditors but once it is out in the form of a loan it can.

 

[Jya-Ning]

Your comparing a billionaire to timeshare buyers?

I am a huge football fan and follow the Redskins pretty intently. When Snyder bought the Skins he had a company worth about $2 billion which he sold after he bought the team. Quite a bit different than the average timeshare owner.

I believe Redskin price is over $800M.

If today you have a house, your networth may over 100k, and a TS resell is 20k assume you decide to buy Disney big package. More likely, if you only has 100k networth, consider the expense of traveling (avg around 1,500), MF, you should only buy less than 1k resell or spend more saving into assest build up.

Jya-Ning

 

[bogey21]

If you live in Texas and are over 65 you can defer paying your Property Taxes at 8% simple interest for as long as you want. Buy a Life Insurance policy with a face amount large enough to pay the accumulated Property Taxes with part of the $$$ that you would normally use to pay your Propery Taxes and use the rest to buy timeshares. This is one place where high Property Taxes can work to your advantage.

GEORGE

 

[brp]

5) Buy from a developer and finance through the developer. Obviously this is one of the last choices, since you pay way more than necessary for the timeshare and pay a very high rate of interest. Also, since most timeshare loans are written as consumer loans, not mortgage loans, the interest is generally not tax deductible.

We bought from Marriott, and financed with them (for the point bonus- maybe not the best deal, but we can pay off at the end of the required period). We were told that the interest was deductible. Is it possible/likely that this could be the case with them, or were we simply given incorrect (false??) information? Obviously, we will research further, but I figured the far more experienced here will have an idea as to whether deductibility is even a possibility with timeshare loans from the developer.

Cheers.

 

[Dave M]

Yes, some timeshare loans - not many - are written as secured mortgages, thus qualifying the interest expense for tax deductibility. I believe Marriott's loans, at least for U.S. purchases, are written that way.

 

[brp]

Yes, some timeshare loans - not many - are written as secured mortgages, thus qualifying the interest expense for tax deductibility. I believe Marriott's loans, at least for U.S. purchases, are written that way.

Thanks for the reply, Dave. This was Aruba OC, but the paperwork is all handled in Florida (as I'm sure you know far better than I ). So, it is possible, although suggestions to pay it down quite a bit immediately and hold a minimum until the end of the term (to get the points incentive) are very good and will reduce the overall interest immensely.

I still think we overpaid for what we got (and could have negotiated better). It's basically my wife's purchase and I'm trying to convince her (with no success) to rescind. She's not up for reading the brilliant sites like this, and some of the airline sites. We have until the end of the week

Cheers.

 

[johnmfaeth]

Marriott loans at the Frenchman's on St. Thomas all have recorded mortgages, thus making the unit qualify for interest deductions for many people (not all taxpayer's qualify).

Easy way to check is with the local county clerk/register of deeds and see if a mortgage for the unit is also recorded.

If not, look at your loan docs, it's probably a personal loan, most timeshare loans are, Marriott is an exception.

Almost anything outside of the US (and it's territories/possessions) is a lease, thus the loan is not a mortgage by definition. Some Bahama's timeshares are deeded for example.

I have never seen a deeded Aruba unit. Check your loan documents.

 

[brp]

I have the docs at home, and I'm at work. When we signed, though, they were the same sort of loan docs that we signed for our primary residence purchase. Of course, many of the fee fields were blank since things like lien checks and many of the doc fees did not apply...but it was the same kind of form. I'll look more closely when I get home to see if I can discern whether it is a mortgage or personal loan, but it seems "mortgagey." Won't matter too much if we pay most of it off immediately...but it's the principle of the thing

Cheers.

 

[Steamboat Bill]

I have been a lender on www.prosper.com since March 2007 and have done peer-to-peer lending with over $10,000 of my money loaned to total strangers.

My average interest rate is 19% and I have about 60 loans out there and 4 are acutally in collections.

I was pretty liberal in who I loaned to money, but I probably would have never lent money for someone to buy a timeshare.

Additionally, I did not loan any money for less than 15% interest as the risk is too high.

Prosper.com has been fun, but I got tired (and depressed) to read all the financial horror stories out there from payday loans. Thus, I am not loaning any more money and will shut my account off after all loans are paid or defaulted.

Either way, my goal was to beat 5% ROI as this was the best CD I could get for my cash in the bank. So far, I am averaging 19%, but expect that to decrease when I write off a few bad loans.

Prosper is a great concept, but with "unsecured" loans....there is no real incentive to pay back money you lend.

 

[dchilds]

401k Loans

I don't understand all the fear of 401k loans. I do understand that some companies require the loan must be paid off within 60 days of leaving a job, but many allow monthly payments until it is paid off. People state that you loose the investment interest of the 401k funds, but you are paying yourself interest on the loan. If you take out a loan at 8% interest, you are guaranteed an 8% return on your investment, which is much better than some of my 401k investments have been paying in years past. Say you purchased a car using a 401k loan. Instead of paying a bank 8%, pay yourself 8%. You can always get a loan on the car if you need to pay back the 401k loan in a hurry.

 

[Transit]

I've been very anxious to by a Key West Hyatt week.This is a pure luxury that I can do with out so I've been just throwing a little cash to the side to pay in full when it's time. ..Those other options are very tempting .