What Is a Timeshare Loan?

If you’ve ever considered owning a vacation home, you might have thought about buying a timeshare. While having a place to escape the daily grind sounds appealing, it can also be expensive. This is where a timeshare loan might help.

Timeshare loans are offered to buyers who can’t pay in cash. Keep reading to explore how timeshare loans work, the options available, their pros and cons and important factors to consider before borrowing.

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What a Timeshare Loan Is and How It Works

A timeshare loan is a specialized loan that helps someone finance the purchase of a timeshare. These loans are typically offered through developers or third-party lenders who focus on vacation financing.

Timeshare loans can be arranged in different ways. They may grant deeded ownership or provide a right-to-use contract. Regardless of how your loan is structured, you should know that these loans often carry very high interest rates, sometimes more than 20%.

Many people assume that a timeshare loan functions like a mortgage, but they are quite different. Mortgages are long-term loans secured by the property, allowing you to build equity over time. 

A timeshare loan, however, is a short- to mid-term loan that rarely builds any resale value and is more comparable to a personal loan. You make monthly payments, just like you would with a mortgage, but often have little or nothing to show for it at the end of the term.

Common Timeshare Loan Options and Alternatives

If you’re thinking about purchasing a timeshare, you’ll want to understand the financing options available. Here are some of the most common.

Developer and/or On-Site Financing

Best for: High-income individuals with a strong credit score

A common way for people to finance a timeshare is through the developer or resort. This usually happens during a timeshare presentation, where their sales team offers limited-time savings or other perks in exchange for quick financing. Unfortunately, buying in these cases doesn’t give you a chance to shop around. 

Although there is little underwriting for developer financing beyond a credit and income check, these loans carry very high interest rates, sometimes exceeding 20%. Most loans last between seven and 10 years, making monthly payments seem affordable, but the total finance charges over the full term are substantial.

When it makes sense: Developer financing almost never makes sense. However, it can be useful if you had already planned to buy the timeshare anyway or plan to refinance soon.  

Personal Loans for Timeshares

Best for: Budget-conscious buyers looking for a shorter payoff period

Personal loans can be used for nearly anything, including timeshares. These unsecured loans are generally better than developer financing options. Approval depends on your credit, income and debt-to-income ratio.

Using a personal loan to buy a timeshare allows you to shop around for the best rate, which can range from 8% to 36%, depending on your credit score. 

When it makes sense: You can comfortably manage a short-to-medium payoff timeline and understand that the timeshare has poor resale value, but you still want it.

Home Equity and HELOCs

Best for: High equity, rate-sensitive borrowers

If you currently own your home, another financing option to consider when purchasing a timeshare would be a home equity loan or HELOC. These loans are secured with your home, making interest rates much lower than with developer or personal loans.

However, lower rates also come with a major drawback. If you find yourself in a position where you can’t make payments on your loan, you could risk foreclosure on your home. Additionally, many HELOCs have variable interest rates, meaning if rates go up, so will your monthly loan payments.

When it makes sense: Using a personal loan vs. a home equity loan or HELOC makes the most sense when you can get a significantly lower interest rate, and your loan is a small part of your home's equity.

Non-Loan Alternatives

Best for: Anyone with available cash

If you have the available cash, this is always the best way to buy a timeshare. You’ll avoid financing charges and won’t be risking your primary residence for a timeshare that offers no appreciation.

Another strategy is to find a used timeshare that you can purchase at a fraction of the cost. This could give you a better opportunity to pay with cash or arrange payments over a short period.

Pros and Cons of Timeshare Loans

Before using a timeshare loan, you should consider all the pros and cons.

Pros

• Allows you to spread out a large upfront cost: Using a timeshare loan allows you to buy the timeshare without needing a lot of cash.

• Immediate financing: Unlike purchasing a home, which has a long underwriting period, you can buy a timeshare using a timeshare loan and have financing arranged the same day.

• Fixed monthly payments: Timeshare loans typically have fixed monthly payments, helping you budget for the expense each month.

• Easier approval compared to mortgages: Timeshare loans have easier financing requirements, making them simpler to obtain than a mortgage. 

Cons

• High interest rates: Timeshare loans often come with high interest rates, which means you could end up paying thousands of dollars in financing for a depreciating asset. 

• Fewer legal protections: Unlike mortgages, timeshare loans lack federal legal protections.

• Difficult resale market: If you decide you no longer want or can’t afford the timeshare anymore, they can be hard to sell.

• Credit impact if you default: Like any other loan, defaulting can significantly affect your credit.

How To Decide if a Timeshare Loan Makes Sense

If you’re thinking about a timeshare loan, take a step back to evaluate the whole situation to make sure it’s the right choice for you. The checklist below will help guide your decision.

• Have you compared personal loan rates? Timeshare loans usually carry very high interest rates. Be sure to compare at least two or three personal loan options to determine if they are a better choice.

• Will you use the timeshare consistently? Timeshares don’t increase in value like traditional real estate. When you buy a timeshare, it's for vacation purposes, not as an investment. Make sure you plan to use it often, or you’ll be wasting money every year.

• Are extra fees included in financing? Timeshares often come with additional fees like maintenance and association dues. These will still need to be paid even after your loan is paid off.

• Is the total cost manageable? Once you understand the costs of your loan payment and any other expenses related to your timeshare, make sure it comfortably fits within your budget.

• Do you understand resale limitations? A timeshare can be difficult to sell if you no longer want to own it. Because of that, you should make sure you want to own it for the long term.

When making your decision, consider this approach: if interest rates are competitive and you plan to use the timeshare often, then a timeshare loan might be worth considering. However, if you can find better interest rates elsewhere and need more flexibility, then exploring other financing options could be more beneficial. 

Timeshare Loan: A Quick Recap

Owning a timeshare might sound like the perfect option for your family's yearly vacations. However, before you jump at the hard sales pitch you’ll receive at the timeshare presentation, consider the facts.

• Timeshare loans can provide quick financing, but they typically have high interest rates. 

• Timeshares rarely hold their value, and most depreciate quickly. This means that if you need to sell, you might owe more on your loan than the timeshare is worth.

• If you want to sell your timeshare in the future, it might be challenging due to the limited timeshare market.

FAQs

Can you refinance a timeshare loan?

Yes, you can refinance a timeshare loan, but you probably won’t be able to use a traditional lender. Instead, you’ll need to pay off the loan with a personal loan, home equity loan or HELOC.

What happens if you default?

If you default on a timeshare loan, the consequences vary depending on how the loan was set up. Some timeshares are secured by the timeshare itself. In this case, the developer will proceed with foreclosure to reclaim the timeshare. Defaulting will also harm your credit score and may result in legal action.

Are interest payments tax-deductible?

In most cases, the interest paid on a timeshare loan isn't tax-deductible. 

Can you sell a timeshare with a loan attached?

Yes, you can sell a timeshare with a loan attached, but it's usually more challenging. This is because timeshares depreciate rapidly and may be worth less than your loan balance, which will need to be paid off before closing.

Are timeshare loans secured or unsecured?

Sometimes, timeshare loans are secured by the timeshare itself, but most are unsecured, which is why they have higher interest rates.

Sources:

• Latern by SoFi. "Timeshare Loans: Can You Finance Timeshare Purchases?"

• SoFi. "How Timeshare Financing Works for Vacation Property

Photo credit: NickyLloyd/Getty Images