"Real" cost per point with Disney financing

[newt1912]

I know there are a lot of members here who love to use their Excel spreadsheets for figuring financing/costs. I have noted that many who post about purchasing take a 10 year loan with DVC. My philosophy has always been to take a loan for the least amount of years so as not to make the purchase truly higher with the additional finance charges over a period of time. Could someone tell me the difference between the ending cost/point with a 5 year loan vs a 10 year loan. Just to give you some figures to work with - Purchasing 200 points @ $70/point= $14,000. Put 20% down = $2,800. Amount to be financed = $11,200. What would be 10 year finance charges, what would be 5 year finance charges, etc.

Thanks

 

[Lew]

You didn't state an interest rate, so I used 10%...

For a five year term your monthly payment is 237.97; total payments are 14,278.01; total interest is 3,078.01; total point cost including interest is 17,078.01; cost per point is 85.39.

For a 10 year term your monthly payment is 148.01; total payments are 17,761.06; total interest is 6,561.06; total point cost including interest is 20,561.06; cost per point is 102.81.

I tried to format this info as a table but the formatting wouldn't work in the message window.

 

[newt1912]

Thanks, Lew. This is exactly what I was looking for. So for $89/month extra, you can decrease your payments by 5 years and thus decrease the overall cost/point significantly. I always try to take loans for the least amount of time that I can afford. I realize that having the tax deduction for the interest and other things factor in to final cost/point but I just wanted to see this straightforward cost/point.

Thanks again.

 

[Terry S]

The other think you should think about is that you can get the 10 year loan and pay it off early, Disney doesn't have a pre-payment penalty. You could finance 10 year and pay it off in 5 by making double payments, this way if one month you got in a bind, you could just make the one payment.

 

[Gigashadow]

Just a question - Why are the only rates I see everyone posting is double digit loans? There are plenty of different types of loans(lengths) to choose from that are a lot better then 10-11% avaliable today.

Just my thought

 

[mickey7861]

That's the rate when financing through Disney.

 

[JeffreyH]

True, you pay less "out of pocket" doing a 5 year loan, but you have to come up with over $1,000 more per year. Even assuming you can do that, if you can invest that money at a higher rate than you can borrow the money, you are actually ahead by doing the 10 year loan.

In other words, you could finance for 10 years, over the first 5 years you would pay $1,070 less per year than if you had done a 5 year loan. You could invest that money, have that plus your earnings over several years to pay towards the loan in years 6-10. If you earn less than your loan rate, then you DO end up paying more for financing over 10 years. But it wouldn't be $17/point. And if you earn a higher rate of interest than your loan, you'd wind up ahead.

There is an "opportunity cost" in giving up $1,000 per year.

As for the interest rates in the double figures, as Mickey7861 said, that is the rate through Disney. The advantage to it (in addition to the convenience) is that it could be tax deductible as a loan on a second home (most DVCers do deduct their interest I would guess). So it might be better than taking out an 8% personal loan or a fixed rate cash advance from a credit card at say 7.9% (neither of which would be tax-deductible). Of course, a traditional home equity loan would probably be cheaper, but not everyone has house equity. And I haven't seen too many banks offering personal loans under 7.5% (what Disney's 10.95% rate is for someone in the 27% federal/5% state tax brackets who can deduct the interest).