Financing Resale Questions

[Dean]

No, there are times when financing is a good idea. But the worst case is far from "we will take a lot of trips then sell for a couple thousand less than we bought it for."

Part of the reason some of us are pretty adamant on the whole "bad idea" is that for the FEW people for whom its a good idea, they tend to know who they are. For each one of those, there are probably ten people who read the DVC purchasing board exploring the idea of buying DVC for whom it is not a good idea and are not financially savvy. If even one of those ends up in a less secure financial position because of something I posted, I'd feel like I did them a disservice.

And it isn't just that - when people get themselves into bankruptcy situations, or foreclosure situations - that effects all of us. Its a drag on the economy. It increases costs for the rest of us - or, in the case of DVC, can lead to depressing the costs on the resale market - where I plan on selling my DVC. I suppose if you are in a position where you want to buy points, you could cheer on people, hoping there would be a lot of distressed contracts hitting the market.

Even short of bankruptcy situations, if you spend today and don't have money to help your kids with college or for your retirement, society as a whole suffers.

I used to say there were exceptions on financing like money coming in, before a price increase and the like. I no longer believe that to be true. All you have to do is look at debt rations, net worth and savings at retirement statistics. If someone could pay for it but decides to finances anyway, that's less of an issue but still a poor choice IMO. For many it's just rationalization for those that can't afford it given their other choices in life.

Leasing a car is typically a 3 year commitment, DVC can be 30-50 years. Lots can happen in that amount of time. Be careful what you choose, life happens whether you're ready for it or not.

True on the time frame but the numbers are similar and in some ways DVC may be a better choice than the car lease, esp for someone that buys resale then finances.

 

[crisi]

I used to say there were exceptions on financing like money coming in, before a price increase and the like. I no longer believe that to be true. All you have to do is look at debt rations, net worth and savings at retirement statistics. If someone could pay for it but decides to finances anyway, that's less of an issue but still a poor choice IMO. For many it's just rationalization for those that can't afford it given their other choices in life.

The specific exception I'm thinking of is someone who can pay cash but chooses to finance. I can pay off my house, I have a loan on it. The mortgage rate with the tax writeoff is basically giving me free money to invest. If I ever need to make a big purchase (bigger than a car or DVC), I'll likely use the same mortgage leverage trick If your cash is better off in a different place, you are one of the few.

 

[thelionqueen]

The specific exception I'm thinking of is someone who can pay cash but chooses to finance. I can pay off my house, I have a loan on it. The mortgage rate with the tax writeoff is basically giving me free money to invest. If I ever need to make a big purchase (bigger than a car or DVC), I'll likely use the same mortgage leverage trick If your cash is better off in a different place, you are one of the few.

Again, that is great for your situation and your opinion. I think comparing this instance with dragging the economy down or affecting everyone is a stretch. Using that scenario I could offer dozens if not hundreds of examples that would support your opinion. Although you're strongly against a situation for your own reasons or justifications, that does not make it anything more than what's best for you and your opinion.

 

[crisi]

Again, that is great for your situation and your opinion. I think comparing this instance with dragging the economy down or affecting everyone is a stretch. Using that scenario I could offer dozens if not hundreds of examples that would support your opinion. Although you're strongly against a situation for your own reasons or justifications, that does not make it anything more than what's best for you and your opinion.

But it isn't a stretch, its just a numbers game. One bankruptcy doesn't hurt. What happened in 2008-9 did hurt, it hurt a lot of people - and a lot of people who behaved well - a job loss can be hard to survive even if you don't have luxury debt. And yes, there are lots of things that when you do them, just one person doing it is fine (not recycling). When a lot of people do it, it can have a severe impact. This ethical foundation is called a Categorical Imperative and was first voiced by Immanual Kant in 1785. Like a lot of philosophical foundations, its hard to do perfectly, but its a pretty good system. An alternative is rational egoism, its good if its good for me. Ayn Rand followed a rational egoism philosophy - awesome if you don't have kids and don't care about what happens to the world when you die.

 

[Dean]

The specific exception I'm thinking of is someone who can pay cash but chooses to finance. I can pay off my house, I have a loan on it. The mortgage rate with the tax writeoff is basically giving me free money to invest. If I ever need to make a big purchase (bigger than a car or DVC), I'll likely use the same mortgage leverage trick If your cash is better off in a different place, you are one of the few.

Personally I don't believe in the good debt/bad debt theory (maybe bad debt/worse debt) and certainly not for consumer items. My view is the risk outweighs the potential math differential even financing at 3% and investing. I do play some games with my Marriott CC but it's more for convenience that anything else. But even then and considering I pay it off every month, it represents a certain amount of risk and I'd be foolish to ignore that fact.

Again, that is great for your situation and your opinion. I think comparing this instance with dragging the economy down or affecting everyone is a stretch. Using that scenario I could offer dozens if not hundreds of examples that would support your opinion. Although you're strongly against a situation for your own reasons or justifications, that does not make it anything more than what's best for you and your opinion.

I disagree, to me it's a principle. I'd agree that individuals have the right to make the decision but I do not agree it's something they can justify as reasonable based on personal preference, choice.

 

[crisi]

Personally I don't believe in the good debt/bad debt theory (maybe bad debt/worse debt) and certainly not for consumer items. My view is the risk outweighs the potential math differential even financing at 3% and investing. I do play some games with my Marriott CC but it's more for convenience that anything else. But even then and considering I pay it off every month, it represents a certain amount of risk and I'd be foolish to ignore that fact.

I'm not ignoring the risk, but all investing involves risk. And the leverage I have in the house nets me a few thousand a year and represents a fraction of the overall portfolio. Being risk adverse myself, I wouldn't take the risk if I couldn't afford the risk. At the point where the risk occurs, we are in such deep doo doo as a society that it won't make a darn bit of difference.

 

[thelionqueen]

Personally I don't believe in the good debt/bad debt theory (maybe bad debt/worse debt) and certainly not for consumer items. My view is the risk outweighs the potential math differential even financing at 3% and investing. I do play some games with my Marriott CC but it's more for convenience that anything else. But even then and considering I pay it off every month, it represents a certain amount of risk and I'd be foolish to ignore that fact.

I disagree, to me it's a principle. I'd agree that individuals have the right to make the decision but I do not agree it's something they can justify as reasonable based on personal preference, choice.

It's as easy as agreeing to disagree on this one. I personally do not subscribe to that line of thinking. There are so many variables from one person to the next, it's impossible to paint every situation with the same brush. There are people who are risky investors some who are not. You could argue both sides as reasonable based on their choice and degree of perception of risk. I use this scenario as a generalization of preferences as it pertains to finances, security and the like. Obviously very different scenarios, but it aligns with choices individuals make that may be opposite of others or mainstream

 

[Marriedbythemouse]

I agree that financing and debt can be a problem. We financed the first resale because I knew I was getting my lump sum bonus in a few months. We had a few years of getting large lumps of money. Did I spend a bit more to have DVC a few months before my cash was available, yup. Would I do it again, yup. Do I owe anything for the 400 points we now own, nope. So please don't paint everyone who finances as people that can't afford DVC. Some of us just don't want to wait.

 

[Dean]

It's as easy as agreeing to disagree on this one. I personally do not subscribe to that line of thinking. There are so many variables from one person to the next, it's impossible to paint every situation with the same brush. There are people who are risky investors some who are not. You could argue both sides as reasonable based on their choice and degree of perception of risk. I use this scenario as a generalization of preferences as it pertains to finances, security and the like. Obviously very different scenarios, but it aligns with choices individuals make that may be opposite of others or mainstream

That's fine but I don't agree with the idea that just because one thought it was/is a good idea makes it so. While each situation is different they don't vary that much where DVC is a reasonable consideration, there are also principles involved. That's the thing about principles, they really apply pretty much across the board even to those that think they don't in their situation. That's my opinion, we can disagree and still be friends.

 

[thelionqueen]

That's fine but I don't agree with the idea that just because one thought it was/is a good idea makes it so. While each situation is different they don't vary that much where DVC is a reasonable consideration, there are also principles involved. That's the thing about principles, they really apply pretty much across the board even to those that think they don't in their situation. That's my opinion, we can disagree and still be friends.

Disagreements are nothing more than discussion in my opinion, and I respectfully continue to disagree. You mention principles that apply across the board which I 100% disagree with. You can speak to 100 different people and they will all have very different principles and ideas which may or may not make sense to others. Your principles to not apply globally no matter how much sense they make to you and/or in general. I just cannot subscribe to one scenario that fits all in regards to anything, DVC included. I enjoy and listen to comments of everyone, whether or not I agree with them. That is how I learn, understand and keep or change my opinion. No harm, no foul, still friends!

 

[Dean]

Disagreements are nothing more than discussion in my opinion, and I respectfully continue to disagree. You mention principles that apply across the board which I 100% disagree with. You can speak to 100 different people and they will all have very different principles and ideas which may or may not make sense to others. Your principles to not apply globally no matter how much sense they make to you and/or in general. I just cannot subscribe to one scenario that fits all in regards to anything, DVC included. I enjoy and listen to comments of everyone, whether or not I agree with them. That is how I learn, understand and keep or change my opinion. No harm, no foul, still friends!

I don't believe in situational ethics or principles but it's all good. I just want everyone to be OK, sometimes in spite of themselves.

 

[MamaBelle4]

I agree that financing and debt can be a problem. We financed the first resale because I knew I was getting my lump sum bonus in a few months. We had a few years of getting large lumps of money. Did I spend a bit more to have DVC a few months before my cash was available, yup. Would I do it again, yup. Do I owe anything for the 400 points we now own, nope. So please don't paint everyone who finances as people that can't afford DVC. Some of us just don't want to wait.

That's us too. Only with just 100 points. Made sure the financing had no prepayment penalties and any early payment would be directly applied to principal.

 

[mustinjourney]

I'm told Monera doesn't show on your credit report and doesn't do a hard inquiry up front but Lightstream does do a hard inquiry. I assume they would all report if there was a problem with the loans. Personally I think it's foolish to finance and worry about inquiry's and reporting but I know some disagree. There are other options like a local bank/CU for a personal loan and sometimes they are more than competitive. One option often mentioned is a HELOC and IMO, it's about the worst way in the world one can make a luxury purchase by putting one's home at risk. My personal view is that if it's important to someone that can afford it, they can save up and pay cash fairly quickly and if they can't/don't either they can't afford it or it's not that important to them. But the timeshare industry likely wouldn't exist if people made smart choices, same for Best Buy which makes far more on financing/extended warranties than on sales as do car dealerships (esp leases).

regarding cars -- sometimes it's actually cheaper to lease than pay cash. This happened to me due to dealer incentives with older model. Saved about $4000 by paying up front lease vs cash purchase. Not applicable to DVC but something to think about with cars.

 

[Dean]

regarding cars -- sometimes it's actually cheaper to lease than pay cash. This happened to me due to dealer incentives with older model. Saved about $4000 by paying up front lease vs cash purchase. Not applicable to DVC but something to think about with cars.

I don't think that's ever true when you look at the big picture. If you compare to just the up front price only AND assume you were going to finance then it might rarely be true short term but basically never is long term. I don't want to get too far off but suffices to say that the effective interest rate is generally in the 14-15% range (they don't call it interest but that's what it is) almost always on a car lease. For it to truly be cheaper one would have to be able to do the lease then pay it off under the terms of the contract shortly and pay the end buy out cost and come out ahead of just paying cash for the car. If this saves enough to fool with it and have the events on the credit file, go for it, but I'm willing to bet it happens less than getting more than $10 per point effective cash rate when using DVC points for a cash exchange compared to early booking discounts on cruises/ABD.

 

[ELMC]

I agree that financing and debt can be a problem. We financed the first resale because I knew I was getting my lump sum bonus in a few months. We had a few years of getting large lumps of money. Did I spend a bit more to have DVC a few months before my cash was available, yup. Would I do it again, yup. Do I owe anything for the 400 points we now own, nope. So please don't paint everyone who finances as people that can't afford DVC. Some of us just don't want to wait.

So not judging at all, but I would like to suggest a hypothetical to try to illustrate the risk that Dean is talking about. You made this decision based on a projected series of events and what was probably the most likely outcome. But what if something happened in the interim and that bonus would need to pay for (expenses due to loss of job, medical, whatever)? It's unlikely, but possible, and I think that is one of the many variables that he is referring to. Sure, that something could happen a week after you close as well, but that's a much easier situation to extricate yourself from.

All of the posts here are hinting at something but I don't think they come out and saying it directly. There's a difference between being able to afford something and being able to make the payments. Car leases are a perfect example of this. I said it before, but I have friends that drive $60,000 cars because they can afford the lease payment. But they don't have the 20% to put down and couldn't afford the monthly purchase payments. To me, that's a false sense of security.

And there's a spectrum of risk associated with this. Those who finance DVC because they can't afford to purchase outright are taking on the most risk. Those that finance in order to leverage like crisi does with her house take on a certain element of risk but certainly not as much. And those who don't finance but should because they have outlets with better returns are taking on the risk of potentially losing money (or at least not making money where they could have). Leveraging debt is a powerful tool, but only the individual knows if they are truly leveraging debt or if they're kidding themselves. And sometimes, many times perhaps, they don't know the difference, and that is where problems arise.

What level of risk is considered acceptable is a personal decision. At what point it is considered generally reckless or unwise is a personal value judgment. Dean feels very comfortable sharing his thoughts on this and he does so in a very respectful way. I'm not as well spoken so I don't share where I stand. But I agree with him and crisi when I say that the ideas I share on this board are greatly skewed to keeping people out of trouble, so to speak. If it comes off as judgmental I apologize, that's not the intent.

 

[mustinjourney]

I don't think that's ever true when you look at the big picture. If you compare to just the up front price only AND assume you were going to finance then it might rarely be true short term but basically never is long term. I don't want to get too far off but suffices to say that the effective interest rate is generally in the 14-15% range (they don't call it interest but that's what it is) almost always on a car lease. For it to truly be cheaper one would have to be able to do the lease then pay it off under the terms of the contract shortly and pay the end buy out cost and come out ahead of just paying cash for the car. If this saves enough to fool with it and have the events on the credit file, go for it, but I'm willing to bet it happens less than getting more than $10 per point effective cash rate when using DVC points for a cash exchange compared to early booking discounts on cruises/ABD.

In my case, by "financing" the car, I was given a $4500 cash rebate on the price of the car from the manufacturer. Had I paid cash, that rebate was unavailable. It was only offered b/c they were trying to get rid of the last few older models. Also, I did a fully paid up lease (pay one big down payment which covers the 36 months of payments), which dropped the financing charge (money factor) from around 6% to less than 0.9%. I paid about $16000 for the 3 year lease. If I want to buy the car at the end, it will be less than $32000 (I think it's closer to $30k). The cash price was around $50000, so I come out ahead and get to keep $34000 earning interest for 3 years.

Normally, leasing is more expensive than paying cash -- but in my case, it truly was cheaper due to that manufacturer rebate that was only available with financing.

 

[Dean]

In my case, by "financing" the car, I was given a $4500 cash rebate on the price of the car from the manufacturer. Had I paid cash, that rebate was unavailable. It was only offered b/c they were trying to get rid of the last few older models. Also, I did a fully paid up lease (pay one big down payment which covers the 36 months of payments), which dropped the financing charge (money factor) from around 6% to less than 0.9%. I paid about $16000 for the 3 year lease. If I want to buy the car at the end, it will be less than $32000 (I think it's closer to $30k). The cash price was around $50000, so I come out ahead and get to keep $34000 earning interest for 3 years.

Normally, leasing is more expensive than paying cash -- but in my case, it truly was cheaper due to that manufacturer rebate that was only available with financing.

If I'm reading you right and assuming there were no other up front charges that wouldn't have been present on a purchase, you will pay roughly $48K for a car that retails for $50K. Still likely a little more than if you'd just bought it but not by much if you actually buy the car and the numbers are accurate. But that assumes you buy the car, if you don't you're starting from scratch no different than if you traded a 3 yr old car in on a new one and you've taken on the additional risk involved in a lease. Any interest on the difference is minimal in this scenario IMO. I wonder what % of people would carry through and convert it to a purchase and what % would move up in car this way rather than staying with what they could pay cash for if they so chose. I'd look at it like a 6 or 12 month same as cash scenario which I also feel is foolish for similar reasons but I know people play those games frequently and a significant % lose the game. There's the potential for very high interest cost (like 20%) and people often buy things they can't afford.

But here's the real problem with these type of issues, we're not really talking about people who have their financial act together, could pay cash and chose to play games to potentially gain a few hundred or even couple of thousand dollars. Those people exist and likely more on this board than in most groups, but the real problem is what Dan mentioned above, being able to make the payments today is not the same as being able to afford something. If you feel I'm overly conservative, that's fine, but no one can argue against the end point. I'd simply refer people to the statistics on net worth and retirement savings.

 

[crisi]

I agree that financing and debt can be a problem. We financed the first resale because I knew I was getting my lump sum bonus in a few months. We had a few years of getting large lumps of money. Did I spend a bit more to have DVC a few months before my cash was available, yup. Would I do it again, yup. Do I owe anything for the 400 points we now own, nope. So please don't paint everyone who finances as people that can't afford DVC. Some of us just don't want to wait.

We did a similar finance. A HELOC when we bought DVC. But....the bonus was there within a week, the closing happened a few days faster and the bonus arrived a few days later than planned. The bonus was three times the amount of the DVC purchase. And there was money available to not have to do that - but it was tied up in the stock market. I also had cash reserves to cover it, but chose the HELOC over the savings account for emotional reasons that don't necessarily make rationale sense, but help me sleep better. So the simple truth is I didn't need the HELOC, it was the way to get money for DVC that was convenient and didn't leave me feeling short on savings.

On car leases, my sister's in laws do very well on leases, because he is a fairly severely disabled vet and qualifies for some huge discounts - I think since he is a hometown hero, they are also giving him some direct from the dealer discounts. Since they put very few miles on the car they buy, buy it for resale value, then take advantage of a heavily discounted buyout price at the end of the lease, and resell the car. But, again, its a very unusual situation - there probably aren't many people getting that level of discount on the leases and buyout or putting that few miles on a car, who also have the financial resources to pay for the lease. The discounts are there in part because when you are a severely disabled vet, you generally don't have money to lease an Escalade. I've looked at making car leases work for us, and we just can't - HOWEVER, if we were to lease as part of the business, then the tax advantages kick in and then it makes sense (but I don't, because neither of us drive that much for the business, so it doesn't seem ethical and probably doesn't meet the strict reading of business use - I know a lot of people who do it though.)

 

[DebbieMouse]

I've done a search and don't think I came across entirely information that I'm looking for so if I missed it links would be good too.

This is strictly curiosity (and so I can advise family / friends when it comes up). What is the current interest rate for buying direct through DVC if needing to finance? Is there still a minimum 10% down? Also what is the interest rate if buying resale? Are there other finance places beside Monera? I know Disney does a credit check but the loan doesn't end up on your credit report, is the same true if financing through resale?

Basically what would the process be like if wanting to purchase resale and needing to finance - interest rates, credit checks, closing costs (I think it varies by contract but is the amount established similar as the MF's are - $$ per point of contract?

Thanks

 

[DebbieMouse]

I used Vacation Club Loans for my resale financing and I paid 9.9%. it was super easy but they do check your credit score.