What to Know About Timeshare Loans

Thinking about purchasing a timeshare? Timeshares can definitely be tempting, especially if you’re already vacationing in a wonderful spot that you could easily envision yourself living in for the rest of your life. Though timeshares may seem appealing, they definitely come with a few drawbacks that you need to be aware of before you agree to anything.

Here’s what you need to know about timeshares and timeshare loans.

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In this article

    What is a timeshare?

    A timeshare is a vacation property that you purchase with other people — meaning that collectively you all own a portion of a certain piece of real estate. However, the property is not yours to use whenever you wish. You are only allowed to use it during certain times of year. Typically, the amount of time you have to use the property is one week, one time a year.

    If you do some digging, you’ll find that there are many types of timeshare models. You can find timeshares for campgrounds, condos, apartments, and vacation resorts.

    [ Read: Is It Still Possible to Do Disney on a Budget? ]

    For the most part, timeshares usually use one of the following methods:

    Fixed week 

    This is the most typical timeshare where buyers are able to access the property for a very specific time of year for a specific length of time, usually one to three weeks. The drawback to this timeshare system is that it is often very difficult to switch your week with another timeshare owner, so if you are unable to go to the property during your allotted week then you have missed your only opportunity for that year.

    Floating week

    The floating week method is more flexible than the fixed week model in that you get to choose when you use your timeshare. However, it’s on a first-come, first-served basis. As you may expect, using your timeshare during busy times of year is often very difficult. Floating week models are best used by people who are retired or who have flexible work schedules.

    Points

    The points method is a bit more complex than the previous models. With it, owners are allocated a certain amount of points each year that they can spend as they see fit, which is very similar to credit card points. The best part about it is that the points can be used to purchase time at a variety of ‘in-network’ resorts any time of year. Logically, certain retreats cost more points than others. Users, if they wish, may purchase time in a larger resort for a shorter amount of time, or stay for longer periods in a smaller resort. The choice is theirs.

    [ Read: 5 Money-Wasters You Should Look Out For ]

    The cost of a timeshare

    The average cost of a timeshare interval is $21,455 with an average of $1,000 in maintenance fees according to an annual study conducted by the American Resort Development Association in 2019. But there could be other unexpected fees, as well.

    What to watch out for with a timeshare

    Simple: Unrestrained fees and dues.

    Many timeshare owners can expect a slight increase in cleaning fees each year. The amount varies with each company. Just keep this in mind if the monthly payments are already a little high because in a few years the cleaning fees alone might push owning a timeshare past your budget.

    Next, you need to be mindful of HOA fees. Though HOA fees vary wildly depending on a variety of factors, the thing you must keep in mind is that no matter what the amount is, the fee could rise literally overnight. If the HOA comes across a major problem with a group of dwellings that must be immediately dealt with, what you pay month to month could suddenly change without warning. So no matter how reasonable an HOA fee may seem at first, just know that that number isn’t set in stone.

    Different types of timeshares

    Share deeded

    A share deeded timeshare is where each timeshare owner owns a small amount of the property. Because of this, each owner also has a deed for the amount of the property they own.

    Outlined within the deed is a description of when the owner is allowed to use that property. Many share deeded timeshares grant access to a network of other timeshare properties, which means the timeshare owner may choose to use his or her timeshare at a different property each year.

    Shared lease

    A shared lease is similar to a share deeded timeshare in that the owner is allowed to use a timeshare property for a specific period of time each year; however, it differs in that the ownership doesn’t last forever. It may expire when the timeshare owner passes away or end after a certain amount of years have gone by. This means that the timeshare property may not be passed down or inherited by a beneficiary.

    Benefits of a timeshare

    • Guaranteed location: You know you’re staying somewhere you’ll love.
    • You may save money: They can be more affordable than one-off vacations.
    • More for your buck: Amenities are often much better than with typical hotels.
    • Sell your time: If you can’t make it one year, you can always sell off your week to a friend.
    • Save yourself time: You won’t spend hours of your time figuring out where you’re going to go for vacation each year.

    Drawbacks of a timeshare

    • Locked in: Timeshares are notorious for being difficult to get out of.
    • Same location: Do you really want to vacation at the same place every year?
    • Price can escalate quickly: Fees can come in overnight demanding more of your money every month.
    • Declining property value: The value of a timeshare usually decreases over time. This means if you want to sell your timeshare for a profit, you’re going to have a hard time doing so. 
    • Transferring is difficult: Some companies say that if you get bored of your timeshare you can transfer to another timeshare; however, this is anything but easy, and you’ll have limited options. The company requires you to stay in-network, which means you won’t be able to go wherever you want.

    [ Next: Which Rewards Cards are Best for Vacation Rentals? ]

    Other ways to finance a timeshare

    You’ll likely be offered timeshare loans when looking into purchasing timeshares. However, loans for timeshares often come with extremely high interest rates. Luckily, if you don’t have the cash, there are other ways you could still make the purchase even without using timeshare personal loans.

    Personal loan: For personal loans to be cost effective, you’ll need to have a strong credit score. If you do, the benefit is that you don’t have to put up any collateral. Even better is that borrowers are often able to get a personal loan up to $100,000 provided they have a strong income and a low debt-to-income ratio.

    For a $23,000 loan, a person with a 750 credit score should expect to pay $255 a month for 10 years with a fixed rate of 5.95%.

    If your credit is low, you could always explore bad credit personal loan options to finance a timeshare. However, this may fall under “what not to use a loan for” if you have bad credit.

    Home equity loan: With a home equity loan you use the equity in your home as collateral to secure a second mortgage. The drawback is that you are putting a lien on your home — meaning you could lose it if you default on payments — but the benefit is that they’re easier to qualify for if you have the equity.

    The lowest many banks allow you to borrow (if you apply online) is $25,000. Assuming you draw that amount, you may be looking at a payment of $152 a month for 30 years with an interest rate of 6.15%.

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    However, home equity loans and personal loans are better for more important expenses like debt consolidation or home improvement projects. It’s not recommended to take out a second mortgage to pay for a timeshare.

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Lauren Ward

    Contributing Writer

    Lauren Ward is a personal finance writer living in Virginia’s Blue Ridge Mountains with her husband and three children. In her spare time she enjoys board games and gardening.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.