My Thoughts in Favor of Financing

[logan115]

?

To use the 401k example above. Last year I took a fairly large loss on my 401k. But I still have a 401k. Had I not put any money aside for retirement, I wouldn't have 'lost' any money last year (paper losses), but I also wouldn't have any money set aside for retirement.

No fair - you can't use my example to help make your case

I will only make an exception if you finance the royalties you owe me for using that instead of paying cash

Just kidding,

Chris

 

[marynvince]

I think it is great that someone looking to purchae DVC will be able to hear both sides of the discussio, so they can make a more informed decision. That said, how do you stand on the topic?

Having been active on these boards for the last 2 years I have seen many different versions of this same question.

Personally we financed on our disney credit card for 2.99% for life. Which as far as loans go, is close to as cheap as they come. My payments put me on a payoff schedule of less then 2 years. One could certainly argue that since my home loan has a higher interest rate, i should be paying more on that instead. Yes, but, I like the thought of getting this paid off.

As i get older, i have changed my perspective from a total monthly payments point of view to a minimize debt, favor cash, point of view. I think that comes from a combination of maturity and income level.

I agree with the arguement that your kids are young once and if you wait to pay cash you will miss sharing experiences with them, like disney. So for responsible individuals, financing can make sense.

However, i shake my head when i see the posts about....I have a bad credit score, can i get financing?...Hey they took my payment out a day early.....How late can i pay without a late payment. Just because you can get financing, doesn't mean you should. The disney lifestyle is not an all inclusive program, it's expensive.

my 2 cents.
Vince

 

[Doctor P]

Debt is not necessarily a bad thing, contrary to what some would try to make you believe. Borrowing to manage cash flow or to match payments with use of an asset is good financial management. Borrowing to make DVC "affordable" is a different egg.

 

[Sandisw]

Do you care when you are trying to make a mortgage payment that you took a $6k loss over what you would have taken had you spent all your money on consumables anyway....or do you care you have an asset you can sell so you don't have your home foreclosed on?

To use the 401k example above. Last year I took a fairly large loss on my 401k. But I still have a 401k. Had I not put any money aside for retirement, I wouldn't have 'lost' any money last year (paper losses), but I also wouldn't have any money set aside for retirement.

I respect your point of view and think it is an important one to bring out for those that are considering DVC.

But I also think that the whole point of the OP's post is that there is no one right way to look at things when it concerns purchasing DVC.

For some, financing makes sense and for others, paying cash does. I do agree that before someone buys in to DVC they should look at it from all angles and understand what it is going to do for them in terms of financial obligations.

All of us are vulnerable to having things happen in life that could change our course and that financing DVC will play a role if that happens. But so will depleting savings to pay cash.

Personally, before joining DVC last winter, I probably spent well over $40,000 to pay for my trips to WDW over the last 10 years. Now, I certainly could have taken 1/2 the trips and put the other $20,000 toward my mortgage and have less debt. And, some will call me silly for spending so much for "vacation" vs. making myself more financially stable.

But, the decision was mine and I made it understanding my choices.

The bottom line is we never know what tomorrow will bring and must look at our own situation and make the decision that is right for us.

 

[logan115]

Having been active on these boards for the last 2 years I have seen many different versions of this same question.

Personally we financed on our disney credit card for 2.99% for life.
We did roughly the same thing, 1/2 cash, 1/2 on a credit card that had 1.99% for life.

However, i shake my head when i see the posts about....I have a bad credit score, can i get financing?...Hey they took my payment out a day early.....How late can i pay without a late payment. Just because you can get financing, doesn't mean you should. The disney lifestyle is not an all inclusive program, it's expensive.

Agree. When I posted in favor of financing it was under the assumption that people were not in a position like you reference above.

my 2 cents.
Vince

Debt is not necessarily a bad thing, contrary to what some would try to make you believe. Borrowing to manage cash flow or to match payments with use of an asset is good financial management. Borrowing to make DVC "affordable" is a different egg.

Just noticed your avatar, and prior to that assumed Corntown was in Iowa, but guessing Dekalb fits the bill as well. I went to NIU for a year and had a blast. So much fun in fact that they asked me not to come back

If you are from DeKalb, is Lukolos still in business ? Had many a late night patty melt from there and they're the best ones I've ever had. One of my other favorite things from DeKalb is the pizza nuggets from various pizza places there, can't seem to find them anywhere else.

Ok - back to the original topic of this thread.

Chris

 

[disneyvacalover]

I respect your point of view and think it is an important one to bring out for those that are considering DVC.

But I also think that the whole point of the OP's post is that there is no one right way to look at things when it concerns purchasing DVC.

For some, financing makes sense and for others, paying cash does. I do agree that before someone buys in to DVC they should look at it from all angles and understand what it is going to do for them in terms of financial obligations.

All of us are vulnerable to having things happen in life that could change our course and that financing DVC will play a role if that happens. But so will depleting savings to pay cash.

Personally, before joining DVC last winter, I probably spent well over $40,000 to pay for my trips to WDW over the last 10 years. Now, I certainly could have taken 1/2 the trips and put the other $20,000 toward my mortgage and have less debt. And, some will call me silly for spending so much for "vacation" vs. making myself more financially stable.

But, the decision was mine and I made it understanding my choices.

The bottom line is we never know what tomorrow will bring and must look at our own situation and make the decision that is right for us.

I too have spent THOUSANDS at Disney over the years. We live a frugal life and do not carry debt besides the typical mortgage at 4.75% interest (14 years left)and lots of equity, student lean at 1.8% interest, and 10 months left on a car loan. We pay credit cards off each month and continue to use them for the rewards. We save for retirement but don't have a huge emergency fund which I know we should have.
That being said we are trying to buy resale. Many many years I looked at DVC but it never seemed like a good deal until my family grew. Now we have to pay for 2 rooms at any value or moderate resort. Even at a value that adds up! The last 3 trips we have rented points. I never understood the DVC commercial when people would say I wish I would've done it years ago. Well I get it now[/SIZE]. If I only had the money that I spent on renting someone else's points. I could've paid for a third of my DVC by now.
We hope we are lucky enough to pass ROFR and will use our HELOC. It's at 4.75% interest that is tax deductable.
We go to Disney every year already and have been for the last 13 years. In a few years when this is paid off our trips will cost about half what they do now.

 

[crisi]

I respect your point of view and think it is an important one to bring out for those that are considering DVC.

But I also think that the whole point of the OP's post is that there is no one right way to look at things when it concerns purchasing DVC.

For some, financing makes sense and for others, paying cash does. I do agree that before someone buys in to DVC they should look at it from all angles and understand what it is going to do for them in terms of financial obligations.

All of us are vulnerable to having things happen in life that could change our course and that financing DVC will play a role if that happens. But so will depleting savings to pay cash.

Personally, before joining DVC last winter, I probably spent well over $40,000 to pay for my trips to WDW over the last 10 years. Now, I certainly could have taken 1/2 the trips and put the other $20,000 toward my mortgage and have less debt. And, some will call me silly for spending so much for "vacation" vs. making myself more financially stable.

But, the decision was mine and I made it understanding my choices.

The bottom line is we never know what tomorrow will bring and must look at our own situation and make the decision that is right for us.

Yes, but you will never convince me it is wise to do so. All of these arguments in "favor" of financing seem like empty justifications to me - with the exception of financing to leverage existing assets - and even then, I wouldn't leverage my home or my 401k for DVC.

If you want to finance, go ahead - I certainly can't stop you. But if you are going to try and convince me that its a good idea - which is what the OP has set out to do - I haven't been convinced yet and I'll continue to make counter arguments. However, I freely admit that I am very financially conservative with a rather low risk tolerance when it comes to money I need. I also have a rather strange sense of ethics - I think if I sign a promissory note, I pay it barring truly extraordinary circumstances, regardless of if Disney reports to the credit bureaus or not. I wouldn't have any self respect for myself if I did otherwise.

 

[Sandisw]

Yes, but you will never convince me it is wise to do so. All of these arguments in "favor" of financing seem like empty justifications to me - with the exception of financing to leverage existing assets - and even then, I wouldn't leverage my home or my 401k for DVC.

If you want to finance, go ahead - I certainly can't stop you. But if you are going to try and convince me that its a good idea - which is what the OP has set out to do - I haven't been convinced yet and I'll continue to make counter arguments. However, I freely admit that I am very financially conservative with a rather low risk tolerance when it comes to money I need. I also have a rather strange sense of ethics - I think if I sign a promissory note, I pay it barring truly extraordinary circumstances, regardless of if Disney reports to the credit bureaus or not. I wouldn't have any self respect for myself if I did otherwise.

That is the thing. I don't think anyone should convince you that it makes sense as it is a personal decision and for you, financing luxuries, such as DVC, is not something you feel comfortable with.

But on the same note, I don't think you are going to convince others that it doesn't and I don't believe that the OP or anyone else is trying to change your view.

I am with you, though, on following through on your committments. If someone decides financing DVC is the way to go, then absolutely it should be a priority and not thought of as something that they can just "default" on because its not on the credit report.

I really believe that most people who purchase DVC, especially those on this board, have done the research, know the pros and cons and put a lot of thought into whether or not it makes sense for them.

 

[bumbershoot]

I haven't checked on the thread since I replied, and started with the last...

But if you are going to try and convince me that its a good idea - which is what the OP has set out to do

...

Is it what the OP wanted to do?

Or was the OP just tired of people, for whom financing doesn't work, being rude about people for whom it DOES work?



Have there been many people saying that they just would stop paying on it???? How odd.


That said, of all the things that you can "get rid of" easily, a timeshare is one, in times of need. Whether it's something you have paid off and need to sell, or just something you need to turn into the main company to stop your payments, both don't seem to be horribly hard.

When my FIL died, he had this very odd little timeshare with an RV company. I guess they are these lovely RV resorts, and you have to be a member to go there. He enjoyed RVing, and bought in, even though his wife despised the RV. They rarely went.

He died a few months before the annual dues were owed. None of us could pay them. The RV was actually deeded in the paperwork to his kids, and because he bought when he bought it would go to the grandchildren too...we wished we could have done it (we're tent campers, not RV, but they all had tent spots), but it was impossible at that point. So we just gave it back to the company. Apart from the emotional factor, it was the easiest thing we did in the aftermath of his death.

You can't include DVC in a bankruptcy; if you can't pay, it just goes back to Disney, where they can resell it. No one gets anything for free with it, if the purchaser can't pay...


And I'm ONLY thinking about this b/c of what you said, and b/c we briefly considered cancelling when hubby's layoff news hit.

 

[crisi]

But you have made a promise to Disney to pay. Disney is out the money - and yes, they've gained their secure property but you still haven't held up your end of the deal you made when you said you'd pay. In the case of death the contract is over with. But if you haven't died, it isn't. You've signed a promissary note - a promise to pay. You've pledged. You've entered into an obligation. If you can get rid of that by simply turning it over to the company, you have a different ethical standard than I do. Now, as I said, mine seems to be strange and more rigid than many.

 

[Greysword]

...Is it what the OP wanted to do?

Or was the OP just tired of people, for whom financing doesn't work, being rude about people for whom it DOES work?

This is pretty accurate for the initial premise for the post. I noticed the topic of Not Financing keeps creeping into posts, and I this thread has achieved exactly what I intended: for the knowledgable DISers to lay out their arguments, so newcomers and those once again tossing around the idea of DVC can get various view points to help their decision process. To that end, each of you have contributed immensly!

Vince - Thanks for clarifying your point; it seems many topics reoccur on these boards, and I think these discussions are healthy for our community and for newcomers to reaffirm or learn something new. I remember these type of discussions in the 1990s assuming an 8% return on invested cash instead of DVC, which may have turned to nothing if the investments were in Enron, General Motors, or other such stocks (hind sight is great!)

...Borrowing to manage cash flow or to match payments with use of an asset is good financial management. Borrowing to make DVC "affordable" is a different egg.

This is an awesome point, Doc, and I would like you to clarify a bit!

When a company "manages cashflow", they generally decide to either pay one creditor and hold off on another invoice at this moment, or they take a line of credit to prevent the usage cash, so they can use it on something else or keep it available for emergencies (sorry for the run-on sentance ). Under this premise, it seems the definition is basically the same as making DVC affordable. For example, I can use my $200 to either bolster general/ emergency savings, pay down my mortgage, save for a item (like DVC), place it in a retirement account, or just keep it in checking for use on whatever. This is how I perceive managing cash flow for a family, which those who finance DVC decide to allocate these funds to that item.

Let me know if I strayed off the path, and I hope you expand on this a bit more.

 

[ohtarabell]

Do you care when you are trying to make a mortgage payment that you took a $6k loss over what you would have taken had you spent all your money on consumables anyway....or do you care you have an asset you can sell so you don't have your home foreclosed on?

To use the 401k example above. Last year I took a fairly large loss on my 401k. But I still have a 401k. Had I not put any money aside for retirement, I wouldn't have 'lost' any money last year (paper losses), but I also wouldn't have any money set aside for retirement.

I'm not commenting on whether or not you should save money.

I am commenting on the fact that your example makes no sense. You are comparing a starting value of 2k now, with a starting value of 20k in the future. You are comparing losing your job now, with losing your job at some point in the future (time undetermined). You ignore time value of money, future cost of dvc, current cost of vacations up until the time the OP would have 20k to buy Disney (what if that time is 10 years from and points are @200 per point.........what if he saved only 20k..........should he wait another 10 years to buy?).

So, let's hold a couple of your numerous variables constant and compare. Let's say he has 2k right now and it takes 10 years to save 20k. The op loses his job in year 10. He also goes to disney every year for the 10 years. At the end of year 10, he has spent 20k + finance cost+mf's (if he financed). He now owns the dvc points which he sells for 12k.........now he has 12k in assets.

Now let's assume in the "wait to buy" scenario, he has enough cash to buy dvc in year 9 for 20k (no increase in point cost, a mighty big assumption). But, he has traveled to disney every year, paying cash rates. He loses his job (at the same point in time) and sells for 12k........netting 12k.

Holding everything else constant, the question is would he have spent more on the financing than he would have on the difference between cash rates and MF's over the 9 years. In both cases he has 12k in assets. The benefit provided by financing may have provided him the vacations at a net lower cost with the same ending net asset value. I can give you plenty of highly probably scenarios where financing the purchase would be the better option and plenty that would say it wasn't a better option. If you believe that we are heading for an inflationary economy, then most likely.........financing would win (every future dollar is worth less than now, say you are paying with cheaper dollars). If you think deflation is taking hold, then waiting to buy would win (future dollars buy more than current).

If MF's increase and cash rates decrease then he would be better waiting. If MF's increase slower than cash rates, better financing. etc

You were just comparing apples and oranges.

 

[ohtarabell]

Do you care when you are trying to make a mortgage payment that you took a $6k loss over what you would have taken had you spent all your money on consumables anyway....or do you care you have an asset you can sell so you don't have your home foreclosed on?

To use the 401k example above. Last year I took a fairly large loss on my 401k. But I still have a 401k. Had I not put any money aside for retirement, I wouldn't have 'lost' any money last year (paper losses), but I also wouldn't have any money set aside for retirement.

This example is different than your other example. In this example you are at least holding a time point constant and are not comparing it to any other alternative.

 

[Greysword]

But you have made a promise to Disney to pay. Disney is out the money - and yes, they've gained their secure property but you still haven't held up your end of the deal you made when you said you'd pay. In the case of death the contract is over with. But if you haven't died, it isn't. You've signed a promissary note - a promise to pay. You've pledged. You've entered into an obligation. If you can get rid of that by simply turning it over to the company, you have a different ethical standard than I do. Now, as I said, mine seems to be strange and more rigid than many.

I think we all are determined to pay on the DVC loan, and no one (at least on these boards) enter into a loan agreement with the plan to default on Disney.

Life does throw curveballs, though, and if I enter into these type of debtor agreements, I try to understand the ramifications for both sides if something extremely tragic and completely unforeseen happens.

I look at the loans I have in this manner: First, I have paid 5 years on the 10 year SSR contract. Of the amount paid, a majority has been interest to this point, so Disney has received a fair amount of their trouble should something catestrophic happen and they need to take back the points and sell them at a loss (lower point values than the $95/pt we paid). Our new contracts are for BLT and VGC. I am certain they would be able to resell BLT points fairly quickly, and likely at a higher price point than the $97/pt at which we are buying. Plus they will have the afore mentioned frot-loaded interest to help offset their costs. As for VGC, we shall see whether they appreciate, remain the same, or depreciate.

For me, I do not believe unemployment is an issue, as I personally have a back-up job that will provide the same income (see OP). I guess a severe car crash may cause a catestrophic financial event, but otherwise, I personally should be able to repay my debt ontime (or earlier).

I think your point is well founded, though. If the risk of not paying is relatively substantial, then DVC is likelynot an option at this time. That said, it seems the people who post on the DIS understand and believe in this. Some may be looking for reassurance to hold off, and I think that is great. The Disney bug can bite hard, and great input from yourself and others on being conservative with money is likely the answer some are seeking (even if it seems lke tough love) .

 

[crisi]

I think your point is well founded, though. If the risk of not paying is relatively substantial, then DVC is likelynot an option at this time. That said, it seems the people who post on the DIS understand and believe in this. Some may be looking for reassurance to hold off, and I think that is great. The Disney bug can bite hard, and great input from yourself and others on being conservative with money is likely the answer some are seeking (even if it seems lke tough love) .

I'd like to believe that, but last week there was ANOTHER poster on the budget board (there have been at least four) who is endanger of foreclosure on their home with recently purchased and financed DVC points. Often their reasons they ended up there sound a lot like the ones here....my job was safe, I could easily make the payments, the points were going to go up, I was going to Disney every year anyway. This year has been really bad where a lot of people even WITH normally sufficient safety nets have found themselves out of work for longer than they ever thought - or taking new jobs at much less money. Or taking paycuts or hours cut in their current job so now they have to live on less, while simultaneously their credit card company jacked the minimum payment.

I think the majority of time financing works - the interest is throwing money away, but we all throw money away. And from a security perspective, I'm not interested in financing a purchase unless I have current assets to back it up - most people - something like 80% of us - will face a period of unemployment or another significant financial setback - too much risk for me, but I'm very conservative. But financing its a little like alcohol....most of us can drink without ill effects - and some of us have our lives ruined. Encouraging other people to finance, without understanding their level of understanding and discipline, is like waving a beer in front of a person without understanding that alcoholism runs in their family like Secretariat at the Derby or knowing that they got out of rehab three weeks ago. Its nice that its offered (a refreshing adult beverage or the opportunity to finance), it really doesn't need to be pressed or encouraged.

 

[marynvince]

I'd like to believe that, but last week there was ANOTHER poster on the budget board (there have been at least four) who is endanger of foreclosure on their home with recently purchased and financed DVC points. Often their reasons they ended up there sound a lot like the ones here....my job was safe, I could easily make the payments, the points were going to go up, I was going to Disney every year anyway. This year has been really bad where a lot of people even WITH normally sufficient safety nets have found themselves out of work for longer than they ever thought - or taking new jobs at much less money. Or taking paycuts or hours cut in their current job so now they have to live on less, while simultaneously their credit card company jacked the minimum payment.

I think the majority of time financing works - the interest is throwing money away, but we all throw money away. And from a security perspective, I'm not interested in financing a purchase unless I have current assets to back it up - most people - something like 80% of us - will face a period of unemployment or another significant financial setback - too much risk for me, but I'm very conservative. But financing its a little like alcohol....most of us can drink without ill effects - and some of us have our lives ruined. Encouraging other people to finance, without understanding their level of understanding and discipline, is like waving a beer in front of a person without understanding that alcoholism runs in their family like Secretariat at the Derby or knowing that they got out of rehab three weeks ago. Its nice that its offered (a refreshing adult beverage or the opportunity to finance), it really doesn't need to be pressed or encouraged.

People take comfort in other's taking a path simialr to theirs. Whether you finance or pay cash, your decision is validated by others doing the same thing.

Equating financing to alcoholism is ridiculous.

 

[crisi]

People take comfort in other's taking a path simialr to theirs. Whether you finance or pay cash, your decision is validated by others doing the same thing.

Equating financing to alcoholism is ridiculous.

Really?....overspending is a recognized addiction.

 

[marynvince]

Really?....overspending is a recognized addiction.

just as all drinking is not alcoholism.

But, reading is fundamental.

 

[ohtarabell]

I'd like to believe that, but last week there was ANOTHER poster on the budget board (there have been at least four) who is endanger of foreclosure on their home with recently purchased and financed DVC points.

There is good financing and bad financing. There are people who are good at finance and those who aren't. If one used their home as collateral on a dvc loan, I don't think anyone would ever venture an argument as that being a proper use of financing. If they didn't use their home as collateral, then there is only one way the bank can foreclose........... because they can't make their mortgage payments. Whether or not they make the dvc payments are not relevant to the mortgage company. If they have enough to make their home payments but not their dvc payments, they shouldn't be making dvc payments. Direct dvc financing default would have no impact on the banks ability to foreclose. You seem to want to link the two and again, it is either A)not relevant or B) someone that has without question misused and misunderstood HOW to finance DVC. The OP wanted to dicusss financing dvc, not financing dvc in an imprudent manner.

Often their reasons they ended up there sound a lot like the ones here....my job was safe, I could easily make the payments, the points were going to go up, I was going to Disney every year anyway. This year has been really bad where a lot of people even WITH normally sufficient safety nets have found themselves out of work for longer than they ever thought - or taking new jobs at much less money. Or taking paycuts or hours cut in their current job so now they have to live on less, while simultaneously their credit card company jacked the minimum payment.

We can agree on the severity of the environment. Having said that, the vast majority of DVC financed purchases are not defaulting. I don't have the number, but I would be willing to bet that over 85-90% of all financed contracts are current. This would be a very high default rate vs the norm. Still, it somewhat outweighs the "4 people are in trouble on the message board" argument against financing (at least for me). 85% or more are able to meet their obligations in the worst credit crisis since the great depression. And, if they can't meet the obligation, the contract allows for Disney to recover the asset. I don't agree that morality has anything to do with it. Yes, some people can't handle finance and make bad decisions, but most do not. And by the way, please explain to me how Disney is harmed if the borrower defaults?

I think the majority of time financing works - the interest is throwing money away, but we all throw money away.

An absolute incorrect statement. Interest can be throwing money away or it can be a vehicle to increase and amplify wealth, or raise one's standard of living earlier than otherwise possible. Knowing which is which is the issue. My grandfather waited until he could by a house for cash as did many of his generation. Most ended up buying a home in their late 30's(and basically paying the landlords mortgage before that). I owned my first home at age 23. Proper financing worked. It saved me from "throwing money away", to an owner of property that he could use for his mortgage and enhance HIS wealth. See a parallel?

And from a security perspective, I'm not interested in financing a purchase unless I have current assets to back it up - most people - something like 80% of us - will face a period of unemployment or another significant financial setback - too much risk for me, but I'm very conservative. But financing its a little like alcohol....most of us can drink without ill effects - and some of us have our lives ruined. Encouraging other people to finance, without understanding their level of understanding and discipline, is like waving a beer in front of a person without understanding that alcoholism runs in their family like Secretariat at the Derby or knowing that they got out of rehab three weeks ago. Its nice that its offered (a refreshing adult beverage or the opportunity to finance), it really doesn't need to be pressed or encouraged

Most of us can also drive a car responsibly. Some of us cannot. The issue isn't the car, it's the irresponsible driver. The issue isn't the alcohol, it's the alcoholic. The issue isn't financing, it's knowing when and how to use it. Everything good thing has a cost for those that misuse it. It certainly doesn't mean that it shouldn't be available for those that use it appropriately. By the way, can you focus some attention on bacon. I definitely cannot use it appropriately.[/QUOTE]

 

[marynvince]

Us Buckeyes are a bright bunch.

By the way, can you focus some attention on bacon. I definitely cannot use it appropriately.[/QUOTE]

There is no way to misuse bacon. It's impossible to consume too much. If you are a cook, here's a tip you'll love. Strain your bacon grease through a paper towel and store in the fridge and use to cook with....amazing.