lets talk about financing

[joshua74133]

I hate to have to finance this but it looks like Im going to have to finance the last 5K for our DVC... is there a better finance company to go threw for DVC???

 

[AgentP]

If you want to finance part/all of your purchase, are a member of a credit union, and have a good credit rating you may want to look at the rates your credit union offers on personal loans. I purchased a resale last Spring and financed part of it this way as an alternative to having a lot of cash tied up. I'm not sure if it would be an option if buying direct but it might be. At the time I made my purchase credit unions were offering personal loan rate around 7 % which was a much than any of the alternative finance options I was seeing at that time(and no penalty for paying off the loan in full at any time if you felt like it). Good Luck : )

 

[Sandisw]

Do you have a Disney Visa? If you are purchasing direct, you can get up to 6 months, 0% interest by putting your down payment (and possibly up to $10,000) on the card.

We did this and it allowed me the time I needed to spread out my purchase.

 

[Dean]

I hate to have to finance this but it looks like Im going to have to finance the last 5K for our DVC... is there a better finance company to go threw for DVC???

There is only one lending I'm aware of that will lend on a resale and I don't think their terms are any better than DVC's. I'd just wait or buy less points or go resale rather than financing.

 

[ilikedvc]

DVC terms are not great but really easy to deal with. You can always pay it off early

 

[Y-ASK]

As long as you know all the risk/rewards, there's always the option of a 401K loan if you have a 401K and loans are offered.


Y-ASK

 

[Rob S.]

DVC also offers a 12 month loan for only 4.95%.

 

[jlewisinsyr]

As long as you know all the risk/rewards, there's always the option of a 401K loan if you have a 401K and loans are offered.


Y-ASK

This would be an absolute worst case scenario, even below, not buying at all.

 

[Jason@dvcstore]

I hate to have to finance this but it looks like Im going to have to finance the last 5K for our DVC... is there a better finance company to go threw for DVC???

http://www.timesharelending.net/

Jason

 

[Y-ASK]

This would be an absolute worst case scenario, even below, not buying at all.

I've always enjoyed a good 401k Loan debate so please explain why. And please don't use the same old excuse that if you lose your job you have to either pay the entire sum back or treat it as an early withdrawal with all the penalties. Those should be throughly understood before you take the loan out. Not everyone is about to lose their job...

Oh, what's the other one, you get taxed twice on the interest you are paying back into your 401K. Well I'd much rather pay the very small amount of tax you are talking about than losing the entire interest payment to a bank. Not to mention I get to fix my terms such as amount (with a cap), and number of payments. One last point, my particular 401K plan is charging a 4.5% interest rate (and I get to keep that interest paid as part of my 401K). Isn't that better than a 12% loan from a bank in which you will never see that interest payment again in your life time?


Y-ASK

 

[Dean]

I've always enjoyed a good 401k Loan debate so please explain why. And please don't use the same old excuse that if you lose your job you have to either pay the entire sum back or treat it as an early withdrawal with all the penalties. Those should be throughly understood before you take the loan out. Not everyone is about to lose their job...

Oh, what's the other one, you get taxed twice on the interest you are paying back into your 401K. Well I'd much rather pay the very small amount of tax you are talking about than losing the entire interest payment to a bank. Not to mention I get to fix my terms such as amount (with a cap), and number of payments. One last point, my particular 401K plan is charging a 4.5% interest rate (and I get to keep that interest paid as part of my 401K). Isn't that better than a 12% loan from a bank in which you will never see that interest payment again in your life time?


Y-ASK

To me the big issues are simply that of risk and the fact that MOST people don't pay it back. It's the same reason I'd never use a CC or HELOC. Rationalizing the numbers doesn't change people's behaviors.

 

[Y-ASK]

To me the big issues are simply that of risk and the fact that MOST people don't pay it back. It's the same reason I'd never use a CC or HELOC. Rationalizing the numbers doesn't change people's behaviors.

True, you can't make someone do the right thing but I look at it like any other loan I may have. It's got to be paid back and normally that's made easy by auto-payroll withdrawals. The main consideration in my opinion is risk and I'm not about to risk my house by taking an HELOC but if I were comfortable with my employment outlook and I could afford the payment I would probably consider a 401K loan over a conventional loan where you would lose all that interest paid.

Y-ASK

 

[jlewisinsyr]

I've always enjoyed a good 401k Loan debate so please explain why. And please don't use the same old excuse that if you lose your job you have to either pay the entire sum back or treat it as an early withdrawal with all the penalties. Those should be throughly understood before you take the loan out. Not everyone is about to lose their job...

Oh, what's the other one, you get taxed twice on the interest you are paying back into your 401K. Well I'd much rather pay the very small amount of tax you are talking about than losing the entire interest payment to a bank. Not to mention I get to fix my terms such as amount (with a cap), and number of payments. One last point, my particular 401K plan is charging a 4.5% interest rate (and I get to keep that interest paid as part of my 401K). Isn't that better than a 12% loan from a bank in which you will never see that interest payment again in your life time?


Y-ASK

A few key items...two you've covered...the penalty if you fail to pay it back, which is real and the dual taxation as you pay the loan back with after tax, although you invested it pre-tax. Remember, it's not just losing your job, but lets say you retire or move jobs by your own choice. You still must pay it back within a very short duration upon the triggering event.

Next, while you have a loan out, the money is out of market. Sure you are crediting yourself with 4.5% (in your example), but you are losing out on any additional market gain. The interest is locked in, so if interest rates rise, sure you'll continue to pay 4.5%, but your probably missing market appreciation, even in low risk funds. A 4.5% interest rate is not that much above traditional inflation, so your barely moving ahead.

In the end, you are risking your long term, retirement financial security over a luxury purchase. It's better to take a personal loan, use a credit card or finance it direct through the seller first, because if you must default, you are impacting current dollars, not your future retirement security.

IMO, loans or withdrawals without proof of financial hardship should be prohibited because people are already not investing enough in their future retirement and then use logic as you mention and just continue to shoot themself in the foot.

 

[Dean]

True, you can't make someone do the right thing but I look at it like any other loan I may have. It's got to be paid back and normally that's made easy by auto-payroll withdrawals. The main consideration in my opinion is risk and I'm not about to risk my house by taking an HELOC but if I were comfortable with my employment outlook and I could afford the payment I would probably consider a 401K loan over a conventional loan where you would lose all that interest paid.

Y-ASK

You would be the exception, as would I. Still, it's adding a layer of risk that is simply unnecessary. Luxury purchase + added risk + financing = very poor choice in my book.

 

[Y-ASK]

You would be the exception, as would I. Still, it's adding a layer of risk that is simply unnecessary. Luxury purchase + added risk + financing = very poor choice in my book.

I agee totally! The ideal way is to pay cash. Yet some people make a lot of money and like that instant gratification. They don't want to wait two years to save up for the purchase. They want to use it now.

When I suggest a 401K Loan I always hope that people are smart enough to weigh the risk, do their due diligence, and work out the cost vs reward vs risk. It's only an option and it's not for everyone. Look if $20,000 represents a sizable chunk of your (not you Dean ) 401K then don't do it.

Y-ASK

 

[Y-ASK]

A few key items...two you've covered...the penalty if you fail to pay it back, which is real and the dual taxation as you pay the loan back with after tax, although you invested it pre-tax. Remember, it's not just losing your job, but lets say you retire or move jobs by your own choice. You still must pay it back within a very short duration upon the triggering event.

That's the part that has to do with Risk. Everyone's situation is different. For some the risk would be too much, for others it's hardly any risk at all so for this conversation let's just say there's risk and everyone should know the risk for their own personal situation.

Next, while you have a loan out, the money is out of market. Sure you are crediting yourself with 4.5% (in your example), but you are losing out on any additional market gain.

This is probably the most interesting point of all. You say market gain as if that's all the market ever does is gain. Please, tell me what you invested in between April 2007 and Dec 2009 that made you a market gain... Heck that 4.5% interest earned on that hypotheical loan would have been the only market gain you would have made. And let's face it, the choices that most 401K programs offer are not that great. A steady 4.5% would have been a pretty good deal over the last five years and don't forget that all of those monthly payments are being re-invested into what fund you may have allocated so you will see market gain if there is one.

The interest is locked in, so if interest rates rise, sure you'll continue to pay 4.5%, but your probably missing market appreciation, even in low risk funds. A 4.5% interest rate is not that much above traditional inflation, so your barely moving ahead.

Wouldn't that be the same for a bond or a CD? "Barely moving ahead"! And we all saw how far ahead our 401K's went in 2008 .

In the end, you are risking your long term, retirement financial security over a luxury purchase. It's better to take a personal loan, use a credit card or finance it direct through the seller first, because if you must default, you are impacting current dollars, not your future retirement security.

First and foremost you must know or be comfortable that you are not going to default. If you're not comfortable with that don't take the loan out.

In your opinion it's better to take a personal loan and I disagree. Let's take a very simple hypothetical example. Let's take out a loan and only pay the interest for a year. The principle remains the same so that we don't have to deal with varying amounts month after month. Oh and just so we don't keep the loan open ended, it will be paid off in full after the year is over.

Personal Loan: $20,000.00 at 12% annually
After one year you've paid $2,400.00 in interest only.

401k Loan: $20,000.00 at 4.5% annually
After one year you've paid $900.00 in interest only. Of that you'll have to pay maybe 20% or $180.00 in taxes when you retire which leaves you with a net gain of $820.00.

Now let's figure out how much capital gain you might have lost. To be fair let's take a mutual fund and see how it did over 10 years. I think a large one like Fidelity's Contra fund works for this example. Over the last 10 years it's averaged a 5.54% return. So if you left that money alone you would have made $1,108.00 off that $20,000.00 in a year.

So for the 401K loan ($1,108.00 - $820 = $288.00) you would have had a loss of $288.00 and for the Personal loan you would of had a lost of $2,400.00. Which one would you rather have?

IMO, loans or withdrawals without proof of financial hardship should be prohibited because people are already not investing enough in their future retirement and then use logic as you mention and just continue to shoot themself in the foot.

Really? Whatever happen to personal responsibility? I think I can make my own decisions thank you very much...


Y-ASK

 

[Dean]

Yet some people make a lot of money and like that instant gratification. They don't want to wait two years to save up for the purchase. They want to use it now.

That doesn't mean they should or that it's a good choice. IMO, they don't deserve to own in that situation.

 

[eljefe45]

When I bought I had the cash to pay it off but just not access to it while I was down in Orlando. I was going to pay it off using my boss's AMEX so he could get points. He says to me "why don't you use them for points?" He was right, I didn't have an AMEX but that shouldn't stop me. I went out and got an AMEX. Paid off some within a week and then realized that the Venture Card from Capital One got me more points so I got one of those and paid off the balance with it. Got me about 5 flights worth of points.