Question about DVC financing, did Disney make a mistake?

[Skylarr29]

If anyone can take a minute to read this and let me know if I am understanding it correctly, I think Disney may have made a mistake with our financing.

We financed $14,860.00 with an 14.25% interest rate. So wouldn't it be $2,117.55 in interest making the total amount we pay to Disney $16,977.55?

Our payment is $232.96 for 120 months (yes, 10 years - something we never realized or would have agreed on) and if we pay $232.96 for 120 months it equals us paying $27,955.20. That's a huge difference.

Am I totally misunderstanding the way this works or is there a legitimate discrepancy?

Thank you for anyone who read this far

 

[WDWfantasy]

If anyone can take a minute to read this and let me know if I am understanding it correctly, I think Disney may have made a mistake with our financing.

We financed $14,860.00 with an 14.25% interest rate. So wouldn't it be $2,117.55 in interest making the total amount we pay to Disney $16,977.55?

Our payment is $232.96 for 120 months (yes, 10 years - something we never realized or would have agreed on) and if we pay $232.96 for 120 months it equals us paying $27,955.20. That's a huge difference.

Am I totally misunderstanding the way this works or is there a legitimate discrepancy?

Thank you for anyone who read this far

The 14.25% interest rate is an annual interest rate. Not a flat rate. So you are paying that annual interest rate on your unpaid balance over the life of the loan. Same as when you have a home mortgage, car loan, or most other types of loans.

 

[Skylarr29]

The 14.25% interest rate is an annual interest rate. Not a flat rate. So you are paying that annual interest rate on your unpaid balance over the life of the loan. Same as when you have a home mortgage, car loan, or most other types of loans.

Thank you, I found all the info in my documents. It just seems so high. I can tell you this loan won't be lived out lol.

Thanks

 

[WDWfantasy]

I can tell you this loan won't be lived out lol.

Thanks

Your welcome. At that interest rate it sure would be beneficial to pay it off ASAP....

 

[LisaS]

I ran your numbers through an online loan calculator and Disney's figures are correct. As you can see, having to pay such a high interest rate dramatically increases your total cost. You would be paying back nearly double the amount you borrowed over the 10 year payment period.

Fortunately Disney allows you to pay it off early without paying a penalty.

 

[nunzia]

also..they do have 5 year financing available. I would have thought the guide would have told you that, but maybe you can change the terms? I have a 5 year and 10. something interest, and I will be making extra payments on that too....alot... either way you look at it, it's alot of interest, but the quicker I pay it off the better I feel about it.

 

[DVCGeek]

I went with a 10 year for flexability but have been making double payments+ on it so it's dropping fast. Hope to keep that up and pay it off in <= 2.5 years from when payments began if I can!

 

[LisaS]

also..they do have 5 year financing available. I would have thought the guide would have told you that, but maybe you can change the terms? I have a 5 year and 10. something interst, and I will be making extra payments on that too....alot... either way you look at it, it's alot of interest, but the quicker I pay it off the better I feel about it.

If the OP pays an extra $100 per month, that would cut nearly 5 years off the term and cut the total interest in half. In other words, it's not necessary to change the terms, just make an extra payment every month.

 

[YourEveryDayAdam]

Also,

In many cases, since your DVC loan is a mortgage, the interest you pay to DVC can be a tax deduction come April 15. You'll need to consult a tax expert on it, but in my case, I can deduct the interest paid on my DVC loan off my taxes each year. That effectively drops the interest rate by 25%.

 

[Mtnman44]

This is an example of how compounding interest works. When you are a borrower, it is depressing. When you are an saver/investor, it is near magic. It has been said that "Those that understand compound interest are wealthy, those that do not are, well......less (like me)."

You can run the same calculation on your mortgage. Example, 5% of $200,000 is $10,000. But it is not that simple. As already mentioned the rate is annual, so your payments are based on an annual rate of 5% of the principal balance remaining. The total cost of financing is always disclosed on your mortgage promissory note or elsewhere. for a 30 year mortgage, the total you pay the bank is around double the loan amount.

The reverse is true for investments. Take a hypothetical $10k investment at 8%. 8% of $10k is $800. However, over 20 years the total return on this investment would actually be over $33k, if interest is compounded annually.

 

[Skylarr29]

Thanks everyone, we are making extra payments starting from today lol. I am glad I really looked into it. Our plan is to pay it off within 2 years.

 

[DVCGeek]

Our plan is to pay it off within 2 years.

Good for you! Hope you succeed. The majority of upcoming annual bonuses and tax refunds (if any) will be going against OUR BLT loan, that's for sure!

 

[TheRustyScupper]

Thank you, I found all the info in my documents. It just seems so high. I can tell you this loan won't be lived out lol. Thanks

1) Not when 2nd mortgages are going for 5%.
2) Disney's rates are pretty high.
3) In fact, very high.
4) My bank charges less for an unsecured signature loan.

 

[goofygolfer]

Please do not use Disney Financing!!!!! While I love Disney as much as the next person, they are charging waaayyy more than is reasonable. I would urge everyone to expolore other options before making the decision to buy. Home equity lines of credit are down below 4% in some cases. Signature loans can be had for 9%-10%. Also, don't refinance your house to take out $20,000 for a DVC purchase unless you are also lowering your current rate by a significant amount.

I don't want to stomp the fun out of DVC, but if you sat down with a financial planner they would show you how you can either borrower from another source or go to WDW on the cheap for a couple of years while you are saving for a purchase. You will enjoy DVC more if you aren't paying double for it. Trust me.

 

[Paging Tom Morrow]

Please do not use Disney Financing!!!!! While I love Disney as much as the next person, they are charging waaayyy more than is reasonable. I would urge everyone to expolore other options before making the decision to buy. Home equity lines of credit are down below 4% in some cases. Signature loans can be had for 9%-10%. Also, don't refinance your house to take out $20,000 for a DVC purchase unless you are also lowering your current rate by a significant amount.

I don't want to stomp the fun out of DVC, but if you sat down with a financial planner they would show you how you can either borrower from another source or go to WDW on the cheap for a couple of years while you are saving for a purchase. You will enjoy DVC more if you aren't paying double for it. Trust me.

There is a benefit to using Disney Financing vs. Home Equity Line of Credit - the debt isn't secured by your home. Assuming that Disney Financing is 10.25% and HELOC rate is 6%, the difference in monthly payments is around $30 - $35 per month for purchases of 160 points.

While I would never recommend financing a luxury purchase, especially to those who are not in solid financial situations, the reality is that many people choose to do so anyway. In the case of those who are or are close to being overextended, it's better to pay an additional $30 a month than to risk losing someone's home because they overextended themselves on a DVC purchase.

 

[Nikisha421]

If the OP pays an extra $100 per month, that would cut nearly 5 years off the term and cut the total interest in half. In other words, it's not necessary to change the terms, just make an extra payment every month.

if this is accurate...then this is something very interesting...that I will start to do like yesterday....

 

[nunzia]

If the OP pays an extra $100 per month, that would cut nearly 5 years off the term and cut the total interest in half. In other words, it's not necessary to change the terms, just make an extra payment every month.

Very true...

 

[CarolA]

One other cosideration.

DVC financing MAY be tax deductible. (I am not functioning as a tax expert) It it is secured by a real estate debt.

Signature loans, credit card checks etc.. NO. Even if you use the entire amount for DVC the "loan" was not secured by real estate!

 

[ecdoesit]

My guide told me that 25% of annual dues could also qualify for tax deduction. But you better check with your tax expert first. Have anyone been doing that?

 

[Brian Noble]

In the case of those who are or are close to being overextended

If I were close to being over-extended, I would probably not want to commit to 50 years of expensive, luxury vacations. But, that's just me. If someone else wants to, they are welcome to do so, as long as they are not using my money to do it.

My guide told me that 25% of annual dues could also qualify for tax deduction.

The protion of your dues that goes to FL property taxes may be tax deductible---and it should be no where near 25%. It depends quite a bit on your personal situation, how the taxes are billed, whether you itemize, etc. Only your tax professional can tell you for sure.