With entry level timeshare rapidly approaching £20,000 it’s hardly surprising that few have that sort of spare cash lying around, therefore for the majority, finance is required. Here begins the first problem, lending for timeshare purchase or upgrades may only be financed on an unsecured basis. Despite your belief that you are purchasing an asset, you are not, and lending institutions know that.
Secured lending is where the finance institution will accept an asset as security, which they can foreclose on in event of the borrower defaulting. Finance institutions know that timeshare has little or no intrinsic value, hence it offers no security, therefore unsecured lending is the only finance on offer.
Interest rates
As unsecured loans are not offering the lender any security in event of default, the risk is offset by charging interest rates way in excess of secured lending. As an example, below is an unsecured interest rate chart produced by the Bank of Ireland. This is purely for example and in no way are TCA endorsing or recommending either the Bank of Ireland or borrowing to finance timeshare:
As may be demonstrated, the interest rate reduces the longer the term, however these rates offered are substantially higher than secured rates.
Once again we will look at the Bank of Ireland secured lending rates. As may be seen above, over 5 years the interest rate quoted is 13.18% APR. The same loan taken on a secured basis shows an APR of 4.6% based on an 80% loan to value against security.
So, good or bad?
It’s not such a case of good or bad, more a case of logic versus illogic. Not only do the financial institutions recognise that timeshare has little or no value, but legislation in the form of the EU Timeshare Directive 2008 specifically prohibits any suggestion that timeshare is an investment.
Unsecured lending is an everyday fact of life, each time we reach for our credit cards we are spending unsecured and therefore pay the price via high interest rates. Borrowing to buy a car or taking shop finance to buy a new TV are all unsecured loans and so it goes on. Whilst TVs and cars are depreciating assets, they still have a value to both the user and financially.
Timeshare is notoriously difficult to get rid of. Those developers who do have an exit strategy may take it back but with no monetary return to the timeshare owner and in many cases charge a fee. Selling timeshare on the secondary market is a possibility, but over supply and under demand makes prices ridiculously low.
So we ask the question, is it logical to borrow money at high interest rates to buy a product that even before the ink is dry on the purchase contract, the value has virtually fallen to zero? The only real investment value, if you can say that, is an investment in future holidays (subject to availability) but at what cost?
TCA comment
In this short article we have really just focussed on lending to buy timeshare. We have not factored in the major complaints that as a consumer association we receive day on day. The lack of availability to get where you want when you want ranks as the number one complaint followed by ever increasing maintenance fees.
With entry level timeshare maintenance fees approaching the £1,000 mark per annum, doing some simple maths we can see this:
Borrow £20,000 over 5 years unsecured equals a monthly repayment of £444.89. If you are lucky enough to pay the annual maintenance fee on a monthly basis then this cost could be another £83.33, combined this is £528.22. This sum needs to be found every month out of net income
All in all the TCA decision is that we believe it’s a bad idea to get in debt to buy timeshare. Apart from the above, another very important point is that timeshare ownership and loans to facilitate purchase are totally separate entities. You may find that timeshare ownership isn’t working for you and if you’re lucky you may be able to hand it back to the developer but, and it’s a big but, getting rid of the timeshare won’t cancel any outstanding finance so at the end of the day, not only have you got nothing for the money you spent, but you could spend the next X years still paying 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