The cost of financing

[Minniesgal]

The counter argument to this (strictly financial, not judgmental) is that if you were able to pay it off in nine months, then instead you could have spent nine months saving the money, paid for the contract in cash and saved nine months of interest at 12%.

If you're saying that you needed the 12% albatross hanging around your neck in order for you to have the discipline to save so aggressively then I would suggest that there are less expensive ways to institute a savings regimen.

I know I was aware it didn't make the most financial sense we had e cash to pay it in full which was the plan when we took the finance just to pay it off as soon as we got the cash out of savings but when the time came I couldn't bring myself to decimate my savings so I decided to aggressively pay down the finance instead. We payed a little interest I know but we payed large sums at the beginning so we had reduced it even before we started on the repayments and now 9 months later we have our savings intact and own our DVC. Not the most sensible plan I know but it worked for me.

 

[ELMC]

Maybe not, but you sure do make a judgment on people who finance, don't you?

I think this is an example of your choosing to be offended at something that is not offensive. The OP was simply pointing out information to those who might not know, thus "uneducated". It's not a judgment or an insult. If you know about the true costs of financing, whether you chose to do so or not, this statement does not apply to you, nor is he stating that all people who finance are uneducated.

I know I was aware it didn't make the most financial sense we had e cash to pay it in full which was the plan when we took the finance just to pay it off as soon as we got the cash out of savings but when the time came I couldn't bring myself to decimate my savings so I decided to aggressively pay down the finance instead. We payed a little interest I know but we payed large sums at the beginning so we had reduced it even before we started on the repayments and now 9 months later we have our savings intact and own our DVC. Not the most sensible plan I know but it worked for me.

I'm glad it worked out for you and I completely respect this statement. Although this would not be my personal choice, I respect the fact that it was yours. What I find troubling are the cases where people dismiss finance charges as not a lot of money, say that it doesn't matter, or write off the charges against what they would have paid on their next vacation. I think that this starts to enter the arena of justifications as opposed to simply owning it as you did.

I think the bigger issue is one of risk tolerance, and exactly how much of one's savings a DVC purchase should consume. I think that varies from person to person, but is also difficult to discuss due to the sensitive nature of the topic.

 

[Dean]

Maybe not, but you sure do make a judgment on people who finance, don't you?

I too don't believe this is true though I know some do. The OP talked to a principle, if one (maybe one who financed) took it as an insult or personal, that's on them. It's like when you think the preacher is preaching to you.

On a separate note, many who finance intend to pay things off early, I'm told that statistics say most don't.

 

[CraigD]

There are a few flaws in the analysis provided. While anyone would agree that Financing adds to the cost of Ownership, especially at the ridiculous 10 plus rates. However, what is missing in the analysis above is the fact that this is financed over 10 years, but has a usable life of nearly 30 years or longer for newer. The original poster himself says does mention inflation and opportunity costs, but residual value or cost in use are major components.

When you break this down to a Price per point, we have to remember that POINTS are only a DVC currency and mean very little to most non DVCers looking to purchase. Upon my recent purchase I looked at it as a way to give predictable costs to a vacation we were already taking each year for the next 30 years. Using the numbers from the above I would look at it like this... (simple analysis, as I am hampered by my IPAD and limited time today)

Purchase Price after financing as shown above: 53000
Annual Dues on 200 pts. say 6/pt to be in the middle of some of the resorts and figure in some inflation: $1200\yr (36000 for 30 years)
30 year total: $89000
Annual average: $2966

These 200 points will get you between 7-13 days depending on season at a Bay Lake Studio. Giving you an average of 228 - 423 per night again depending on season, but in essence gives you this rate for 30years. I travel very frequently for work, and Very rarely can you find a Marriott or moderate Hotel for rates in this range at desireale locations. Even if you did not keep membership for 30 years, there is still a resale value (subject to market fluctuation). Even if you sold for 50% of what you paid after 10 years, this considerably lessens the cost per point as pointed out above.

Finally, keep in mind that prices DOUBLE on everything you buy nearly every 23 years through inflation... Meaning it will take 2x dollars to buy something in 23 years. If this were figured into the equation, this will significantly add to the value of purchasing DVC. Even if you finance it is best to understand that this is a long term value, Period. Not to mention, there are outside financiers that will do this for significantly less than the DVD rates. I recieved a 5.5% rate over 5 years, makes a huge difference!

 

[ELMC]

There are a few flaws in the analysis provided. While anyone would agree that Financing adds to the cost of Ownership, especially at the ridiculous 10 plus rates. However, what is missing in the analysis above is the fact that this is financed over 10 years, but has a usable life of nearly 30 years or longer for newer. The original poster himself says does mention inflation and opportunity costs, but residual value or cost in use are major components.

When you break this down to a Price per point, we have to remember that POINTS are only a DVC currency and mean very little to most non DVCers looking to purchase. Upon my recent purchase I looked at it as a way to give predictable costs to a vacation we were already taking each year for the next 30 years. Using the numbers from the above I would look at it like this... (simple analysis, as I am hampered by my IPAD and limited time today)

Purchase Price after financing as shown above: 53000
Annual Dues on 200 pts. say 6/pt to be in the middle of some of the resorts and figure in some inflation: $1200\yr (36000 for 30 years)
30 year total: $89000
Annual average: $2966

These 200 points will get you between 7-13 days depending on season at a Bay Lake Studio. Giving you an average of 228 - 423 per night again depending on season, but in essence gives you this rate for 30years. I travel very frequently for work, and Very rarely can you find a Marriott or moderate Hotel for rates in this range at desireale locations. Even if you did not keep membership for 30 years, there is still a resale value (subject to market fluctuation). Even if you sold for 50% of what you paid after 10 years, this considerably lessens the cost per point as pointed out above.

Finally, keep in mind that prices DOUBLE on everything you buy nearly every 23 years through inflation... Meaning it will take 2x dollars to buy something in 23 years. If this were figured into the equation, this will significantly add to the value of purchasing DVC. Even if you finance it is best to understand that this is a long term value, Period. Not to mention, there are outside financiers that will do this for significantly less than the DVD rates. I recieved a 5.5% rate over 5 years, makes a huge difference!

I rest my case.

The issue is not long term use, resale value, cost of other options, availability or anything else. The issue is the cost of financing DVC vs. the cost of purchasing without financing. It's the same exact product that can be purchased in both of these ways, and that is the comparison. Anything else is justification and clouding of the issue.

 

[CraigD]

I disagree... Apparently my point was missed. This is not clouded justification... These are financial analytics... financing has significant advantages. However you need to look at more than just a price per point, look at the cost of travel. I have had a hard time finding a week at Disney for much less than the 2900 in a place I would like to stay.

 

[JimMIA]

I disagree... Apparently my point was missed. This is not clouded justification... These are financial analytics... financing has significant advantages. However you need to look at more than just a price per point, look at the cost of travel. I have had a hard time finding a week at Disney for much less than the 2900 in a place I would like to stay.

Actually, you are doing a good job of making one of ELMC's main points.

What is being analyzed here is very simple -- the cost of purchasing a DVC contract. OP's analysis clearly shows that financing increases the costs of purchase much more than many of us thought.

All of the stuff you mention in your long post may be relevant no matter what route someone takes to ownership -- direct or resale, financed or cash. How one justifies or rationalizes the purchase is a completely different question from what is being discussed here.

This thread is not about WHY someone purchases -- it's about the cost of purchase, and the effect that financing at Disney rates (or higher) has on that cost.

 

[bakerworld]

We've owned DVC for 5 years - financed. We just paid cash at the Dolphin for October because of the LOCATION.

For me it's all about enjoying what time I've left - I am tired of watching the people around me die with full bank accounts and they're fun meter on zero.

 

[MoreTravels]

We've owned DVC for 5 years - financed. We just paid cash at the Dolphin for October because of the LOCATION.

For me it's all about enjoying what time I've left - I am tired of watching the people around me die with full bank accounts and they're fun meter on zero.

Yup. Like the grasshopper and ants story... Their views are different. Nobody should be judgemental but what if there is a tomorrow? Are you prepared for it?

I can see why our current society allows this. If all else fails, declare bankruptcy and wipe out all your debts, so why save? If no retirement fund, then get social assistance so why save?! These spenders are thinking that way and laughing at the savers.

When you see the government pushing interest rate to almost 0%, you know what they are trying to encourage. So resistance is futile. Just spend now and ask question later.

 

[Apps]

Yup. Like the grasshopper and ants story... Their views are different. Nobody should be judgemental but what if there is a tomorrow? Are you prepared for it?

I can see why our current society allows this. If all else fails, declare bankruptcy and wipe out all your debts, so why save? If no retirement fund, then get social assistance so why save?! These spenders are thinking that way and laughing at the savers.

When you see the government pushing interest rate to almost 0%, you know what they are trying to encourage. So resistance is futile. Just spend now and ask question later.

I think the person above is saying is that life is a balance. I know people that save and save and really do not enjoy anything. My view is that I didn't enjoy my twenties enough. I prepared and saved but I wish I would have splurged a little more. I am way better off now so I could have easily recovered anything that i spent in my twenties. Now that I have kids, my life is definitely more rigid so I have way less time for vacation. Spending freely isn't so bad as long as its not abused. The value of having something immediately shouldn't be overlooked. We do only live once.

 

[Dean]

There are a few flaws in the analysis provided. While anyone would agree that Financing adds to the cost of Ownership, especially at the ridiculous 10 plus rates. However, what is missing in the analysis above is the fact that this is financed over 10 years, but has a usable life of nearly 30 years or longer for newer. The original poster himself says does mention inflation and opportunity costs, but residual value or cost in use are major components.

There is no residual value at the end and likely not the last few years. The problem with things that will get you a lower interest rate are that there is considerable risk involved (HELOC), low or no interest CC for example. While we know the commitment, we really don't know what the true usable life will be. We think it'll be good to the end but 30-50 years is a long time, even for Disney.

Finally, keep in mind that prices DOUBLE on everything you buy nearly every 23 years through inflation... Meaning it will take 2x dollars to buy something in 23 years. If this were figured into the equation, this will significantly add to the value of purchasing DVC. Even if you finance it is best to understand that this is a long term value, Period. Not to mention, there are outside financiers that will do this for significantly less than the DVD rates. I recieved a 5.5% rate over 5 years, makes a huge difference!

The fact that inflation happens as I think you're trying to say, makes the time value of money very important for a larger purchase. I'd say it's a long term commitment, whether it ends up being a value or liability remains to be seen. We're all banking on the former but the latter is certainly very possible.

I disagree... Apparently my point was missed. This is not clouded justification... These are financial analytics... financing has significant advantages. However you need to look at more than just a price per point, look at the cost of travel. I have had a hard time finding a week at Disney for much less than the 2900 in a place I would like to stay.

And I've averaged around $400 (likely under) for a week the last 10 years or so and looking at $600 to $650 a week or a little less going forward for DVC stays.

 

[CraigD]

Of course, there are certain amounts of risk in everything, there are no guarantees in anything in life... EVEN DVC. Paying cash could also leave you wishing you had the cash down the road. If the point being made is simply, Its more expensive to finance. I agree.

However, my point is simply that things cannot be looked at in a silo, and factors as size of family, time of life, inflatin, your opportunity cost on the money, and overall financial picture need to be considered. In the end... Price is what you pay, but value is what you get from any product.

I would enjoy hearing how you have averaged 400 to 650 a week at disney on property, that is exceptional. I have had a tough time doing that off site.

 

[Dean]

Of course, there are certain amounts of risk in everything, there are no guarantees in anything in life... EVEN DVC. Paying cash could also leave you wishing you had the cash down the road. If the point being made is simply, Its more expensive to finance. I agree.

This is the point I believe, to the degree that it can make it an unreasonable expense for some.

However, my point is simply that things cannot be looked at in a silo, and factors as size of family, time of life, inflatin, your opportunity cost on the money, and overall financial picture need to be considered. In the end... Price is what you pay, but value is what you get from any product.

Everyone's situation is different and each must make their own decision but I'd say these factors are used more for people to convince themselves to buy something they really can't afford than as a legitimate reason to buy or buy sooner. As a rule it's people who finance other purchases as well including cars and often vacations in general.

I would enjoy hearing how you have averaged 400 to 650 a week at disney on property, that is exceptional. I have had a tough time doing that off site.

I'll PM you.

 

[JimMIA]

If the point being made is simply, Its more expensive to finance. I agree.

Yes, that is sorta the point. Everyone knows it's more expensive -- Paging Tom Morrow is simply trying to quantify that so thoughtful people can make rational choices. Nothing more, nothing less.

However, my point is simply that things cannot be looked at in a silo, and factors as size of family, time of life, inflatin, your opportunity cost on the money, and overall financial picture need to be considered. In the end... Price is what you pay, but value is what you get from any product.

And you're right, of course. But the purpose of this thread is to show what the price truly is.

With that info, people can make their own choices based on their family's situations. None of us here know anyone else's situations, and therefore, none of us here can really say whether financing is a good deal or a rotten deal for a particular family. We just know it costs more. This analysis shows HOW MUCH more...that's all.

I would enjoy hearing how you have averaged 400 to 650 a week at disney on property, that is exceptional. I have had a tough time doing that off site.

It's good; I don't know how exceptional. I'm working on a deal now that will be in that range if all the planets fall into perfect alignment. If not, I may do it later.

Haven't done it yet, so I don't have Dean's bragging rights -- but I know others who have, including Dean.

 

[Tink2312]

If you can afford to buy outright then of course that's the preferable option but I bought in at 25 and could not afford to put down the $18k. Buying DVC, even using finance, was the best thing I've ever done and I barely notice the monthly payments. I was planning to pay the balance off within the first 3-5 years but now I've decided to leave it for a while longer and maybe even the full term. Although that will not make the best financial sense, it allows me the funds to travel to WDW from the UK once/ twice a year and have other holidays/ purchases. Yes, in the long term I'll pay more but life is for living and I've already been able to provide myself and my family with 4 fantastic DVC stays.

 

[CraigD]

Thanks Dean... Unfortunately too much of a newbie on this forum to reply to your PM, but believe I got it.

 

[Dean]

Thanks Dean... Unfortunately too much of a newbie on this forum to reply to your PM, but believe I got it.

You're welcome, you'll be there soon and can respond or ask questions if needed.

 

[ELMC]

We've owned DVC for 5 years - financed. We just paid cash at the Dolphin for October because of the LOCATION.

For me it's all about enjoying what time I've left - I am tired of watching the people around me die with full bank accounts and they're fun meter on zero.

If you can afford to buy outright then of course that's the preferable option but I bought in at 25 and could not afford to put down the $18k. Buying DVC, even using finance, was the best thing I've ever done and I barely notice the monthly payments. I was planning to pay the balance off within the first 3-5 years but now I've decided to leave it for a while longer and maybe even the full term. Although that will not make the best financial sense, it allows me the funds to travel to WDW from the UK once/ twice a year and have other holidays/ purchases. Yes, in the long term I'll pay more but life is for living and I've already been able to provide myself and my family with 4 fantastic DVC stays.

I love posts like these, because even though I disagree with them for the most part, they are honest. They're not trying to say that it really didn't cost them that much to finance, and they are even admitting that financing DVC is a less than ideal financial decision. I have nothing to rebut these comments and all I have to say is that I wish them the best.

 

[Missyrose]

Of course, there are certain amounts of risk in everything, there are no guarantees in anything in life... EVEN DVC. Paying cash could also leave you wishing you had the cash down the road. If the point being made is simply, Its more expensive to finance. I agree.

But here's the thing, paying cash could be the only thing that allows you to get cash back from your DVC down the road. Let's say you lost your job and since Disney is a luxury you can no longer afford, you want to sell. If you paid cash, you would get the going rate minus 10 percent for broker fees. If you've financed, you likely would have to pay in to get out from under the contract/loan. So you'd have two options: pony up money you likely need to survive unemployment or give the contract back to Disney and write off all your payments as sunk costs.

 

[Paging Tom Morrow]

wanted to give the uneducated a glimpse of the true incremental cost of financing.

I make no judgements on how you spend your money.

Happy vacationing.

Maybe not, but you sure do make a judgment on people who finance, don't you?

Absolutely not. I didn't say that all people who finance are uneducated. I said I was providing the information for those who are uneducated. There's a big difference.

Would it shock you to know that I have financed DVC purchases? I don't regret doing it either. I feel the decision, though expensive, was right for my family at that time. Quite frankly, in my opinion, that's how the decision should be made.

However, most people do not understand the additional costs that financing brings. I would bet that more than 75% of DVC new purchasers would choose not to purchase DVC if they could buy-in at $271 a point with just 10% down for 10 years of interest free financing, yet they happily buy at $165 a point for 10 years of 11.5% financing with the full expectation of taking the full term to pay it off. There's no price differential for those customers, yet one is way more appealing.