When a timeshare owner misses a payment, it can have as serious an effect on their credit as missing mortgage payments. It’s not uncommon for this to cause the owner to stop paying the annual maintenance fees they owe, which leads to more defaults and even worse credit damage. Timeshares aren’t just a financial burden, they can also be very difficult to get rid of.
Timeshare loans often come with high interest rates, particularly for buyers with low credit scores. Fortunately, these loans are not the only way to finance a timeshare. With careful planning, borrowers can avoid high interest rates and instead choose more affordable financing options.
For instance, timeshare lenders often offer pre-completion loans to encourage buyers. These types of loans have higher credit risks, as the units associated with them are not yet completed and are not occupied by their owners. Because of this, they tend to be securitized by sponsors with strong loan performance histories.
People with good credit scores can also take out unsecured personal loans to finance their timeshare. These are a better choice than timeshare financing because they don’t use the borrower’s home as collateral. Depending on the lender, it may be possible to obtain a personal loan for a timeshare at rates that are lower than those offered by the resort or developer.
If a borrower wants to use their home as collateral, they can also apply for a home equity line of credit (HELOC). With this type of lending, a lender will draw on the equity built up in the property and give the owner an upfront cash amount. However, this is a risky option for homeowners because it will reduce their home’s value and can lead to a tax bill.
A HELOC is a great option for borrowers who want to buy a timeshare and are confident they can pay off the debt before the introductory 0% rate ends. This type of loan is ideal for buyers who have a good relationship with their current lender and are comfortable taking on some risk.
Another option for buyers who want to purchase a timeshare is to take out a personal or home equity loan. However, these types of loans typically require a credit score of at least 660. It is possible to find personal loans for people with fair credit, but the interest rate will be higher than a home equity loan.
If a timeshare is not paid off and sold, the resort or company that owns it can file a lien against the property or foreclose on it to sell it at auction. The money received from the sale can then be used to pay off the timeshare debt owed by the former owner or send it to collections.
The bottom line is that anyone who purchases a timeshare should do their research and consider the pros and cons of owning one before making any decisions. If you’re struggling to make timeshare payments, it’s important to consult an expert to help find a solution.