Most people who are unlucky enough to be dragged along to a timeshare presentation have no intention at the start of purchasing anything. Some have no idea what lies in wait and other who are suspicious to the fact they will be subject to a hard sell have a plan at the start to “just say no”; and with the perfect reasons, being a lack of available funds. Timeshare developers have got wise to this and now offer finance, yes an on the spot decision will ensure you have the requisite funds to buy the holiday of your dreams. Please be aware that accepting this finance may result in not only a long term debt but also purchasing something that intrinsically has no real value except future holiday memories. With many resorts wanting around £20,000 as an entry level purchase and with repayment terms stretching between 10 and 20 years, this is a decision that should not be taken lightly or in haste.
Benefits of timeshare loans
The primary benefit of using a loan from a contractor to pay for a timeshare is convenience. The convenience factor may be attractive if you’re hoping to secure any limited-time or special perks being offered by the contractor. Taking this route may also make sense if you have no other financing options available. On the day, those special perks like free restaurant vouchers or free theme park tickets may seem attractive but in reality, they will be available to every purchaser every day, they are simply a way of getting you to make an instant decision. The special one day only price offer is also an untruth, that price will always be available, and they simply emphasise it to instil urgency.
Drawbacks of timeshare loans
The most obvious drawback of timeshare loans is that they come with much steeper interest rates. A recent review of a purchase finance contract revealed an APR as high as 18.9% percent! Loans are unsecured; this is the reason for the inflated interest rates. Interest is merely one of the issues to be aware of when considering financing a timeshare purchase.
Most timeshare resorts utilise what is commonly known as sub-prime lenders, this is primarily because loans are investigated less stringently. The upshot of this is that the interest rate will be considerably higher to that of a high street bank. It is not uncommon for the timeshare salesperson to advise their clients to arrange the re-finance of their loan with a high street bank once they get home, thus reducing the interest rates considerably. The problem they later incur is that in reality the main stream lenders will not offer any loans on timeshare or other long term holiday products.
Reselling is challenging
Most mainstream lenders such as high street banks shy away from providing loans for timeshares because they offer no real monetary value. Given that you are not buying an investment, the value typically depreciates the moment you complete your purchase and ultimately in most cases the timeshare offers no market value at all, making the ability to sell virtually impossible.
One of the primary reasons for loans being unsecured is that lenders don’t want to be stuck with the timeshare should the borrower default on the loan. Let’s say you purchase a timeshare for £20,000 and obtain traditional financing — not through the contractor. Then two years in, you default. Unlike a house or other real property, the timeshare cannot be sold because its value on the legitimate secondary market is far less than what is still outstanding and as a consequence no lender wants to be in that position.
Furthermore, having a loan of any type or outstanding balance on the timeshare can significantly hinder your ability to sell or even relinquish the ownership. Whilst the resale market in the USA is somewhat better than Europe, values rarely come anywhere near the original purchase price.
Timeshares loans are prone to defaults
It is precisely because timeshares do not grow in value and are hard to sell that owners often simply walk away and default on their loans.
Timeshare loans are prone to default because the majority of people who decide to buy timeshares purchase on impulse without realising that they cannot afford the expense and what is worse is that most of these buyers do not realise that they can’t afford the timeshare until much later down the line, when it is way too late to reverse the situation.
If you’re considering a timeshare purchase, experts say that you should be sure that you are doing it for the right reasons. Buy it to use and enjoy it, not as a financial investment. Along with the holiday memories, a timeshare’s main advantage is that it allows you to avoid spending money on future holiday accommodation. The trouble is that if your personal circumstances change, the expense doesn´t, so for many it soon becomes an encumbrance and in time; due to the ever increasing maintenance charges and difficulty in exiting, a financial liability.
Read the fine print carefully
Consumers should double and triple check all maths associated with a timeshare loan agreement, making certain that the purchase price is the only thing being financed. Below is an example of a true contract we have seen:
Loan amount principle – £8,452
Loan term – 180 months
Interest rate – 11.9% APR
Monthly payments – £97.62
Total amount payable over the term – £17,571
Total cost of finance – £9,119
So in this example the cost of finance is greater than the original loan. In effect, every holiday is costing £1,171 each year for 15 years. Factor in maintenance of around £1,000 per annum so without any flights or spending money the holiday is costing £2,171. Also, it must be remembered that the annual maintenance will only go one way, upwards, so every year this holiday will become even more expensive. Should you be lucky enough to be able to settle the finance earlier than the term, watch out for early settlement penalties! Do not sign anything unless and until you know exactly what you’re agreeing.
Early Exit
Another very important point is that you may well tire of your ownership within the loan period and may well have to seek assistance from a timeshare exit company, which of course will bring an additional expense. You must remember that exiting your ownership will not extinguish the loan.
At TCA we have received numerous calls from disgruntled owners, some having owned for less than 12 months. For some reason there is an assumption that cancelling ownership extinguishes the loan, the bad news is that it won’t and never will.
Our last thought
In the example above a monthly payment of only £97.00 per month for 15 years of lovely holiday’s sounds quite good but in reality, you will be paying through the nose. Putting £97 per month in a savings account will not yield massive interest but at least you will have over £1,000 per annum in your holiday fund. Add the £1,000 maintenance you will be saving and we are certain that £2,000 will get you a splendid holiday using booking.com or other similar holiday search engines, in fact you could probably stay in the very same resort and have plenty of change left over to indulge yourselves.
Financial and lifestyle changes occur and what seems a good idea during a few hours of sales presentation could well turn into a nightmare in the future.
Being wise after the event does not offer much solace if you have long term finance hanging over your head with nothing to show for it.
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk