Timeshares can offer a way to vacation at your favorite destination without the cost of owning a second home, and they can also save you money compared to staying at a hotel. But if you opt to buy or finance a timeshare with a loan, be careful about the interest rates. According to ARDA, they can be quite high.
It is important to consider financing options before you meet with timeshare salespeople. Depending on the type of timeshare, you can choose to own it outright or lease it for a certain period of time each year. You can also opt to share a property with other owners. In any case, the salesperson should lay out all fees and charges so that you can make an informed decision about the purchase.
Generally speaking, timeshare loans are structured as unsecured consumer loans. However, the structure of many securitizations of timeshare loans has been altered to reduce the credit risk.
As a result, they are usually rated AA or AAA by rating agencies. This is largely because of the permanent ownership nature of most timeshares upon full repayment and the ability to pass on a timeshare to heirs. In addition, the lack of resale markets for timeshares can discourage obligors from defaulting on their obligations.
In addition to the upfront costs and down payments, you may be required to pay annual maintenance fees for your timeshare. This can be lumped into the loan, or it may be paid separately through a separate agreement. If you choose to rent out your timeshare, there are other fees associated with that process as well – cleaning fees, rental fee, and the potential for property damage.
You can find a variety of ways to refinance your timeshare loan, including personal and home equity loans. But you should only do this if you have good credit. The rates on these types of loans are typically much lower than the interest rate you’ll receive from the developer. And a personal or home equity loan is secured by your house, so you could lose it if you fail to repay the debt.
Another option is to borrow from a 401(k) account. You may be able to get better rates with this, but you’ll have to pay taxes on the withdrawal. Before you pursue this route, be sure to consult with a tax advisor. Check your credit score and read your credit report for free within minutes by joining MoneyTips. Alternatively, you can apply for a personal loan from SoFi. Its rates are competitive and it only pulls your credit on a soft inquiry, so you can see if you qualify with no impact to your credit1. Learn more about timeshare loans and apply online with SoFi today.