Taking out a personal loan to buy a timeshare

Frequent travelers to destination resorts often must sit through timeshare pitches to earn special perks. If you’re persuaded and want to buy in, you can pay with cash, credit card or a personal loan from a lender working with the developer. 

Getting a loan is one of the most popular options for financing a timeshare, but be sure you understand what you’re signing on for. The average cost of a new timeshare is $23,940, according to the American Resort Development Association (ARDA).

What is a timeshare loan?

Purchasing a timeshare allows you to vacation at a specific resort or property at least once per year. It is like having a fractional share in a vacation property and offers a far more affordable alternative to purchasing an actual vacation home.

Often, buyers use a timeshare loan to fund the purchase. These loans are typically offered by sales staff when you tour or visit a timeshare property and the lender may be affiliated with the property developer.

Timeshare financing from the developer is not your only option to cover the costs of buying a timeshare. You could also use a personal loan from a bank, credit union or online lender to purchase a timeshare. One of these routes may be a better financial move.

Timeshare loans are paid on a monthly basis like a mortgage or personal loan. They often have longer repayment timelines than most installment loans — as long as 10 years in some cases — which keeps monthly payments low. However, timeshare loans from the property or developer often have very high interest rates. Combined with a long repayment timeline, that means paying buckets of interest.

Benefits of timeshare loans 

Timeshare loans offer a quick and easy way to finance.

Convenient financing

The primary benefit of using a loan from a developer to pay for a timeshare is convenience. Timeshare salespeople know you likely don’t have cash on hand for a five-figure purchase. And they don’t want you reconsidering your “yes” while navigating personal loan applications after your vacation ends. On-the-spot financing lets both you and the salesperson seal the deal fast.

Special perks

The convenience factor may be attractive if you’re hoping to secure any limited-time, special perks being offered by the developer. Going this route may also make sense if you have no other financing options available to you.

Fixed payments

A timeshare loan gives you a fixed amount you’ll pay each month until the end of the loan. Unlike a credit card with a low introductory rate, with a timeshare loan, you don’t need to worry about tracking the time until an introductory period ends.

Drawbacks of timeshare loans 

The most obvious drawback of timeshare loans is they come with steep interest rates. If you have poor credit, you’ll be offered higher-than-average interest rates. Bad credit interest rates could exceed 20 percent. But that’s only one of the issues to be aware of when considering a timeshare purchase.

Reselling is challenging 

According to Steve Sexton of Sexton Advisory Group, lenders shy away from providing mortgages for timeshares due to low resale and valuation issues. “Because you’re just buying a fractional interest, the value typically does not go up over time and it is very hard to sell.” 

Additionally, it’s hard to sell a property if you still have an outstanding balance, as any buyer will have to take on or pay off that balance.

Timeshares are prone to defaults 

Since timeshares do not grow in value and are hard to resell, owners often simply walk away and default on their loans. 

If you’re considering a timeshare purchase, experts say you should do it for the right reasons. Buy it to use and enjoy, not as a financial investment. A timeshare’s true value is it may allow you to reduce your accommodation costs over the long run. This could be possible by eliminating the need to stay at hotels. 

What to look out for before getting a timeshare loan 

If you choose to proceed with a timeshare loan, be sure you understand all the terms you’re agreeing to and look out for common pitfalls. 

Fine print details 

 Double- and triple-check the terms of your timeshare loan agreement, making certain the purchase price minus the down payment is the only thing being financed. If any extras are included in the financing — like maintenance fees — you’ll have to pay interest on them. It likely makes more financial sense to pay for any extra costs associated with the timeshare in cash instead.

Prepayment penalties 

Perhaps you said yes to a timeshare loan because you plan on refinancing later or paying the loan off early. These can be great strategies for saving on interest — unless there’s a fee for early repayment that eats your savings. Read the fine print thoroughly and ask for written confirmation that there is no such penalty.

Credit card financing offered by developers 

 Many developers have agreements with credit card companies and will push the benefits of using such credit cards. They may suggest opening a card during the financing process. However, such cards likely have high annual percentage rates and underwhelming perks compared to the best credit cards out there. Don’t get talked into taking on a credit card you weren’t already planning on opening.

How to buy a timeshare using a personal loan

If you have a strong credit score, an unsecured personal loan — a loan that does not require collateral — will often cost less over the long run than a developer’s loan. Personal loans tend to have competitive interest rates and repayment terms of up to seven years. In addition, you can typically be approved and borrow up to $100,000. 

If you’re heading to a resort destination and think you may be convinced by a timeshare presentation, do some homework before your trip. This will give you concrete data to compare to financing options you may be presented with during the presentation. 

1. Check the interest rates for personal loans at several banks, credit unions and online lenders.
2. Review the payment terms and see what the length of the loan would be and if there are prepayment penalties. Also verify if there are restrictions that would prevent you from using the personal loan on a timeshare.
3. See if any of these lenders offer prequalification so you can know in advance the amount of financing and rates you may be able to get.
4. At the presentation, see what financing options are being offered. Use a loan calculator to compare the payments and total interest.
5. If the personal loan offers a better deal, complete your application and wait to receive the funds so you can complete your purchase.

Other options for timeshare financing

If you’re on the fence about using a timeshare loan from a developer, there are other ways to finance your purchase. 

Home equity loan 

A home equity loan could be the way to go if you’re able to unlock equity in your home and are willing to take on a second mortgage. 

One of the primary benefits of this approach is that home equity loans can be distributed in one lump sum and generally with much lower interest rates than a personal loan. Keep in mind a home equity loan is secured by your house, meaning you risk losing your home if you default.  

Credit card 

Though using a credit card may not be an obvious choice, depending on the timeshare purchase price and the interest rate on the credit card, this is another funding possibility. 

“If the timeshare purchase only requires laying out a few hundred to a few thousand dollars and you think it will only take a few months to pay it off, then use a credit card,” Sexton says. “Consider applying for a new card with a 0 percent promotional rate for six to 18 months. That way you won’t have to pay interest on your credit card balance.”