Do people really pay those Disney rates?

[wildernessDad]

Over the life of the contract, the purchase price, including any interest due to financing, is peanuts, when averaged out, compared to dues. Dues is the driving cost over time, not the initial purchase price.

Personally, I'm not too worried about those who purchased and financed. It's their choice and over the life of the contract, doesn't matter that much.

 

[redrosesix]

This has turned into much more of a debate than I had expected! But soooo interesting to read!

I personally finance just about every asset I can. I choose to work for little pay for out family business because of the lifestyle it allows me and especially my daughter -- she has lunch with me and her grandmother every day at noon, and can travel and be involved in sports. But before that I always worked for charities, on the front lines dealing with homelessness and poverty -- that doesn't pay very well either. Luckily, I've been able to make up a lot of the difference by trading stocks, but for this reason I need to keep my cash as much as possible.

But...I always try to get the best interest rate possible. I won't have the benefit of people able to claim mortgage interest as a Canadian, although I would question whether that tax deduction would make up for paying 14.75 percent interest through DVC (there must be another way to make this claim?)

If I don't buy into DVC through resale before our next trip, I will likely buy in on the spot when we're there -- I'll finance it at whatever rate I can get, or put it on a CC, or whatever. I'll clean up the mess when I get home.

 

[Nikisha421]

i dont know about anyone else but before I became a DVC member I would call my travel agent every January...and have her tell me what it would cost to go to Disney in July...and that terrible, no good large price would only allow me to stay at a value resort. Then I would call every week and pay her weekly until June or 30 days before my trip...Lay-a-way/Financing?

Call it whatever...but vacations were always apart of my monthly budget...So i financed DVC...

WHY???
because I could
because I wanted to
and
becuase I knew it was the right thing for me...

I did have to put down a little extra...I now I am going to pay a little extra every month...It will get paid off...just like all of the other bills...when I am good and ready to pay offf

 

[logan115]

You're getting 20% back on an investment? Now? In this economic climate? I want in!!!

I'm not that lucky, just pointing out that borrowing at even 30% is profitable if you earn 31% on that money.

 

[logan115]

What if you lose your job and miss a payment????

If I lose my job than the $200/mo payment on that card is the least of my worries

Is it better to pay OOP for 5 years while saving to pay cash for dvc ? In which case I get nothing for the OOP ressies, and most likely higher prices per point in the future ?

 

[Brian Noble]

Over the life of the contract, the purchase price, including any interest due to financing, is peanuts, when averaged out, compared to dues.

This is true only if you ignore the time-value of money. If you assume that dues grow roughly with inflation, and you also use the same figure for time-value, then the purchase price works out to be ~1/3 of the total costs, and dues ~2/3, give or take. If you ignore time-value, then the purchase price is more like 20-25% of the total costs.

That's for paying cash. If you finance using Disney's standard terms, it gets a little trickier.

Your economics teacher (or your accountant) would want you to consider the time value when asking this question. But, it's your money, so spend it how you like.

 

[SeedsLuvDisney]

Is it better to pay OOP for 5 years while saving to pay cash for dvc ? In which case I get nothing for the OOP ressies, and most likely higher prices per point in the future ?

Not all, which is how we justified financing thru Disney. I would rather pay 10.75% thru Disney rather than 6% thru a HELOC or putting it on a CC, but thats just me..

 

[JimMIA]

I would rather pay 10.75% thru Disney rather than 6% thru a HELOC...

HUH? You'd rather pay 11% deductible (maybe) than 6% deductible (almost certainly)???

I don't have a dog in the finance/don't finance fight, but there's some logic there that I'm not getting.

 

[JimMIA]

I'm just not smart enough to have perfect knowledge of every family's financial situation, and therefore, I don't have a clue whether an individual family should finance or not. (We didn't either time, but that's just us.)

However, IMHO, Disney's financing rates are so high now that they only make sense for folks who have no other options. Or for folks who intend (and are realistically able) to pay the loan off very, very quickly.

 

[ssawka]

Would also not use any form of home equity, not going to use our home to secure a vacation.

But why? With the price of houses, if you loose your job or something happens, your in dire straits anyway, and not having the extra $20,000 of an equity loan is not going to make that much of a difference. If your so concerned about loosing your job or something, you probably should not be buying into DVC.

My second point, and this is not directed at SeedsLuvDisney, but having the money in the bank and worrying about the economy is exactly why you should finance. If you have the money sitting in the bank, you can use it to cover your bills until times get better. If you simply pay cash for DVC that money is gone, and the money cannot be used to cover other items. In my opinion, paying cash only makes sense if you have no other debt. Think of it like an insurance policy. That is not to say that you shouldn't pay cash for things, but using debt effectively is a great way to keep your self afloat.

 

[Brian Noble]

having the money in the bank and worrying about the economy is exactly why you should finance.

I'd absolutely pay cash in this situation. If you finance, you are guaranteed to pay the finance charges. If you pay cash, its true you deplete some reserves, but in the very unlikely event that you need to, you can cash out by fire-saling the points a bit under the current resale market.

As long as your income stream is not at significant risk, playing the odds sounds like a smarter bet to me. If your income is genuinely at risk, then now might not be the right time to make a 50-year commitment to vacations---cash or credit. Even DVC owners still have significant outlays on each vacation---travel, food, and admission.

 

[redrosesix]

Which gets me back to my original question. Paying 14.75 % on at least $10,000 (that's what? $1475 in the first year?) is guaranteed to cut into your financial resources, whereas you may be able to find a rate that is significantly lower. And I definitely agree with Brian Noble -- even if you consider your ownership of DVC as an asset, all that goes with it (plane tickets, ADR's, etc) is really a luxury. People should at least be trying to pay cash for those things. (Although from all I've read on the resort boards, many people are borrowing for this too)

BTW, one rule of thumb that I have believed for a long time is that you should have enough cash in the bank to cover 6 months of payments, and that building this cash reserve up should be the priority rather than paying down debt faster (Unless it's a line of credit, etc, where you can easily get your cash back) There have been a few times since my daughter was born that I've had to rely on this reserve (my brother says our family is about as unlucky as the Kennedys)

So, I can understand financing DVC, but I can't see going into it planning to pay 14.75 % over 10 years.

 

[nyck]

Why and whose business is it how people pay for anything? Personally, if people want to finance through DVC that is their choice. Not everyone has stellar credit, and even people with FICO scores above 650 have problems now getting credit for things thanks to the economy. People may look at the interest as a waste of cash, but I think if you are having great vacation and memories with family, that is priceless. Life is too short and you can't take the money with you when you go. And thinking that people who can't afford to buy it with cash don't deserve it is just silly. The family that makes $40,000 a year deserve it just as much as the family that makes $200,000. And sorry, with the banks being bought out and FDIC running out of money, the bank is the last place to think your money is safe right now. I would put any money I have in a foregin bank. Or better yet, like my granny use to do and put it under a mattress. LOL. It is sad when your mattress is safer than an FDIC insured bank.

 

[ssawka]

BTW, one rule of thumb that I have believed for a long time is that you should have enough cash in the bank to cover 6 months of payments, and that building this cash reserve up should be the priority rather than paying down debt faster (Unless it's a line of credit, etc, where you can easily get your cash back)

Exactly, which was my point. Why deplete your cash reserves in order to avoid finance charges?

 

[SeedsLuvDisney]

HUH? You'd rather pay 11% deductible (maybe) than 6% deductible (almost certainly)???

I don't have a dog in the finance/don't finance fight, but there's some logic there that I'm not getting.

Because I don't know what the future holds, if we both lose our jobs, I would rather have our DVC foreclosed on than our home...

 

[YourEveryDayAdam]

Because I don't know what the future holds, if we both lose our jobs, I would rather have our DVC foreclosed on than our home...

Exactly! You don't pay your loan from Disney, then they simply take back the points. If you don't pay your HELOC, they will take your house.

IF tough economic times come about, and you have to stop paying for your DVC, then you'll be really glad the only thing you'll lose is the membership. Allows you to walk away pretty easily.

 

[kikiq]

My initial purchase was financed and my only regret is that I did not do it sooner than I did. My husband only got to enjoy 2 1/2 years of DVC vacationing with his family before his unexpected death. These are memories his children hold onto as they have grown up since. That is priceless, and the interest I paid on that contract was some of the best money I have ever spent..

I agree. We also financed and wished that we had done it sooner.

 

[logan115]

that's why Baskin Robins has 31 flavors.

.

 

[redrosesix]

Why and whose business is it how people pay for anything? Personally, if people want to finance through DVC that is their choice. Not everyone has stellar credit, and even people with FICO scores above 650 have problems now getting credit for things thanks to the economy. People may look at the interest as a waste of cash, but I think if you are having great vacation and memories with family, that is priceless. Life is too short and you can't take the money with you when you go. And thinking that people who can't afford to buy it with cash don't deserve it is just silly. The family that makes $40,000 a year deserve it just as much as the family that makes $200,000. And sorry, with the banks being bought out and FDIC running out of money, the bank is the last place to think your money is safe right now. I would put any money I have in a foregin bank. Or better yet, like my granny use to do and put it under a mattress. LOL. It is sad when your mattress is safer than an FDIC insured bank.

I guess that's why I was wondering what people really do -- we live in Canada and our banks (at least the major banks) are safe.

It seems that most of the people who finance through DVC that responded to this thread pay it down faster so not only can they afford the high rates, they can pay more than that.

But I can't help but think that DVC could offer better rates, especially when I look at your mortgage rates down there, and knowing that they have the security of being able to take back the points if people default. Unlike a house in an area where property values have fallen, DVC can turn around and sell those points at full price, or rent the units that have suddenly become available -- so it's better security than most banks have on residential mortgages.

And with ROFR, if somebody can't make a payment they do have the option of selling their points on the resale market and getting a decent price. So, I would still try to finance them at a lower rate even if it was through a home equity loan. But, as you point out, things are different down there right now.

BTW, I bought our RV 2 years ago on my CC at 10.5 % (I got airmiles, which we used to travel to Orlando this year) and then payed this $30,000 off with a margin account loan ie. against my stocks at 2.9 %, which was payed off when I sold my stocks throughout the next year. But I knew that we were getting to the top of the market for the things I trade and that I would be getting out of the market for a while.

I have no idea exactly how we'll pay for our points yet. I didn't start this thread to criticize anyone -- we're planning to buy into DVC and I genuinely wanted to know what people do.

 

[JimMIA]

Because I don't know what the future holds, if we both lose our jobs, I would rather have our DVC foreclosed on than our home...

That's what I thought you might be thinking, which is why I asked the question.

Actually, though, that's not the way things work. A home equity line or loan is a secondary encumberance on your home, and it's subordinate to the first mortgage...meaning that the first mortgage has to be paid before any secondary lenders get any money.

If you used a home equity line and couldn't make payments, the lender would not be able to foreclose on your home unless they were able to pay off your home mortgage. It's not likely that a lender would go through all that, and then have a large asset to maintain and resell, to collect a $20,000 debt. A much more likely scenario is that they'd work with you to restructure the loan so you could pay it.

And as others have already said, in an extreme scenario where you both lost your jobs and couldn't find new jobs, your DVC ownership would be the least of your problems. If there is any possibility of that happening, I wouldn't buy DVC no matter how I was thinking of paying for it.