To finance or not to borrow

[disney11fan]

Interesting reading on this topic. My feelings if you have to borrow this DVC is not for you.

 

[disney11fan]

I wonder how many people borrowed to finance DVD ?

 

[DVC Doctor]

Every calculation I have made with financing comes out that you are better to rent than buy.

However, if you can finance for less than 5 years and get a low HELOC rate, then it may make sense.

But with Disney 10%+ financing, this is a bad deal no matter how you spin the numbers.

 

[one_cat]

We financed. It worked out great for us. If we had waited until we could pay cash points would have been a whole lot more expensive.

 

[a1tinkfans]

Agree... if u don’t have all or most liquid... not a solid budget situation.

 

[jarestel]

People finance cars all the time for approximately the same price range as a moderate DVC purchase without falling into financial ruin or worrying about their car resale value if "something" happens. I suspect DVC would be a much smaller entity than it is today if everyone followed the "must pay cash" mantra. Having said that, I don't personally care how anyone else decides to spend their money.

 

[DVC Doctor]

People finance cars all the time for approximately the same price range as a moderate DVC purchase without falling into financial ruin or worrying about their car resale value if "something" happens. I suspect DVC would be a much smaller entity than it is today if everyone followed the "must pay cash" mantra. Having said that, I don't personally care how anyone else decides to spend their money.

Do you also not care how government officials spend money? I do!

A car is a necessity for most people and the options such as Uber or bus or bike may not be appealing to them.

A timeshare is a "luxury" purchase MOSTLY sold as a way to save money by prepaying and getting discounts. If this luxury purchase does NOT save money and it would be cheaper to rent points or simply pay cash to Disney, then why buy?

When people buy DVC at today's rates with low down payment and finance with 10% interest and do that for 15 years or more, then it is generally a BAD deal for them. If they can finance and pay it off quickly, like 5 years or so, then it makes more sense. If they pay cash, then that is the best of all (assuming you like Disney, use ALL your points without waste, and stay at DVC properties). Even things like using points for cruise and adventure packages and trading do not make good sense, but are better than losing the points.

 

[Frederic Civish]

I think that if you MUST finance to purchase DVC, as long at you do it right, and don't stretch too far, then financing is actually a good idea.

I know many people will argue that financing 'is not a good investment' but DVC isn't an investment anyway. It is a vacation. It is disposable income. It is money that would be spent on something else, if not on DVC, but probably WOULD NOT be put into an investment.

I also think that people who say it is better to save up your money, and rent until you can pay cash have it wrong. If you purchase, even if you finance, you can have the benefit of getting the vacations NOW, and instead of the money from your Rental going to Disney or to another DVC owner, it goes into your own purchase. If you purchase Resale, you can probably turn around and get all, or almost all your money back, by selling it again. And any money you have payed into it will have built up equity.

Let me give you an example. Let's say you purchase 100 points at AKL, on the resale market. With that 100 points, you can, if you choose the right season, stay in a Studio for 5 days a year. If you buy on the Resale market, that 100 points will cost you about $11,000 (at $110 per point). Now, let's assume you finance it over 10 years, at 10% and your payments are approximately $145 per month, or $1,740 per year ($17,400 for 10 years). And in addition to this, you need to pay about $700 per year in membership fees ($7000 over 10 years). When you add the monthly payments and the yearly Membership Dues, you are spending about $2400 a year, or $24,000 over 10 years.

If you were not purchasing, but renting those points from someone, it would cost you about $18 a point (soon to be $20) so you would spend $1800 per year to rent the same vacation ($18,000 over 10 years). This is $600 less per year, compared to purchasing. But, then, you reach the 10 year point and you realize that you haven't really saved up the $11,000 needed to purchase, since that would have cost you the $1,800 each year, PLUS an additional $1000 per year to save, or $2,800 per year, total, once you add the cost of renting, plus saving the $1000 to buy. (If you were going to spend/save the $2,800 per year, why didn't you just finance? That would have cost you $2,400 per year.) And then you realize that, the trouble was, there was always something else to spend the money on, so it wasn't saved. So, since you haven't saved the $11,000 purchase price, you continue to rent, for another 10 years

So, let's compare purchasing/owning this for 20 years, compared to renting for 20 years.

If you purchase, then for the first 10 years, you spent an extra $6000 but you have also paid off 100% of your financed contract. And so the next 10 years only cost you the Membership Dues, or $7000 total. Meanwhile, for that second 10 years, if you kept renting, you would have spent, another $18,000

Now, you decide to sell. So, you go on the open market and you sell it for . . . . $11,000. And, you get your $11,000 back. Counting the interest in the payments over 10 years, plus the $14,000 for 20 years of memberships fees, you have spent $31,400 total. $31,400 total, minus the $11,000 you get back, means that over 20 years, you have really spent $20,400.

Meanwhile, the Renter spent $18,000 the first 10 years and $18,000 for the second 10 years or $36,000 total. AND YOU WON'T GET A SINGLE CENT OF IT BACK.

So, $36,000 has been spent by the Renter, and $20,400 has been spent by the DVC owner who FINANCED their contract and then sold it after 20 years. And if the DON'T sell it after 20 years. say they just pass it on to family or they Rent it out to make a bit of money, then they come out even farther ahead.

So, does Renting actually make ANY sense? Again, I'd say, JUST GO AHEAD AND BUY THE FINANCED CONTRACT. As long as you are in it long term, and as long as you aren't stretching your budget to do it.

 

[one_cat]

We bought a 150 Point contract in 1998 and a 100 point contract shortly after. We financed both and paid them off in about 7 years at 9.5%. Since buying in we have used our timeshare 17 times including once in Aulani, we’ve also rented points a few times to friends and strangers. We looked at this as an investment as we wanted to use it for family vacations with our kids. Certainly from a pure money management perspective it’s not a great investment. Long term it would have been cheaper to stay at a Motel 6 and bank the difference or not go at all, but we wanted the experiences and chose to build memories.
.
I think those people who say you should wait until you have a huge savings before you splurge are the same ones who say you shouldn’t buy a Starbucks until you have a million dollars in your 401K. Austerity works for some I suppose but we have been happy with our decisions.

 

[Miffy]

The different calculations that are used to justify or anti-justify financing DVC seem to me to miss a huge point: If you don't have the cash to buy DVC and you have to finance this purchase, especially if you have to finance it for more than a year or two, then you probably don't have a lot of spare cash. That being the case, if something else that costs money appears in your life--your car has to be replaced, the roof collapses, an unexpected medical or dental expense, etc.--you may not have the money to pay for that. And in the meanwhile, you have a monthly expense paying back the money for your DVC purchase plus the maintenance fees.

The second part of this line of thinking is that if you didn't purchase DVC and you had an unexpected expense like the ones I just mentioned, then not only would you not have the expenses associated with that DVC purchase you didn't make but you also probably wouldn't take a WDW vacation at all that year, thereby mooting the comparison of what the financed purchase would cost vs. what renting points or having a cash reservation would cost.

I think that anyone considering financing a DVC purchase should consider this not-unlikely possibility. Because unplanned expenses have a way of appearing in life. And a Disney vacation is hardly a necessity (even though it may seem like it!).

 

[kniquy]

I wonder how many people borrowed to finance DVD ?

It is kind of a pro/con situation. People may buy and finance but if you can pay it off sooner than what the loan was taken out for (pay off in 5 yrs vs 10 yrs) then the interest paid won't be horrible.

If people wait to buy in 3 years until they have saved up the money then chances are the contract they want will be more expensive.

Prime example - We paid cash at the end of 2015 for an AK resale. Paid ~$80 per point. If we had to wait to save up the money to then buy 3-5 years later then the price per point currently is at $110-115 per point = $30-35 per point more. So someone waiting until we had the cash to buy wouldn't have saved anything and probably would cost more in the end. So I can see with the consistently rising price per point -- in the DVC world it doesn't always make sense to wait until you have the cash for the purchase. BUT -- it should be financed with the best intentions of paying it off as soon as possible.

So in my example above we bought a 120 pt AK contract. At $35 per point more to buy today would be an extra $4200!! I know we really don't know where the market will go -- there could be another recession and people dumping contracts cheap but the odds are if the market stays strong we will only continue to see direct and resale prices rise. So if someone can buy and can comfortably afford the monthly payments and will have it paid off in 5 years it can make sense to finance.

 

[jerseyduke]

I understand with (and basically agree with) all of the do not finance arguments. Save your money and they buy when you can afford it.
Money paid in interest is money that can not go to something else.
The big point missed is that there is an assumption being made that the money not spent in interest is going to go to something useful.
If you opt not to finance and then just spend that money on garbage, you have not done yourself any favors.

You would be better off buying an asset (note asset, not investment) such as DVC that does a pretty good job at holding its value then you would buying some material POS that collects dust.

That all being said, the rate Disney wants for what is a SECURED loan, is crazy.

I financed my a contract (at a much lower rate thru an alternative source) and paid it off in 3 years. It was a VGF Contract bought directly. If i had waited three years, the purchase price of the contract would have exceeded what I did pay for it plus the interest. This is not really something that should be expected however.

DVC is luxury. Then again, so is a NEW car - and yet people justify financing those all the time.

 

[skippytx]

If you have access to cheap money to finance, it can make sense. No way i would finance at the 10 to 14% interest rates that DVC and other DVC lenders charge. If you can take out a HELOC or something else low interest, it might make sense.

 

[one_cat]

If we had to wait to save up the money to then buy 3-5 years later then the price per point currently is at $110-115 per point = $30-35 per point more.

Not to mention losing the value of 3 to 5 years of points. Even if you rented them they would be worth 120*14.00*3 years = $5,040.00

 

[Arthur2990]

I was plan on paying cash. That is partly why i got a small contract. I didn't like the idea of getting a load to pay off my DVC contract.

 

[MickyLynn]

I understand getting a better rate with a HELOC, but I personally would never under any circumstance put myself in a financial situation where I could (even theoretically) lose my house to pay for a vacation. I know the numbers make more sense. I'd rather pay more to finance and only lose my timeshare points than risk my house.

 

[Frederic Civish]

It is kind of a pro/con situation. People may buy and finance but if you can pay it off sooner than what the loan was taken out for (pay off in 5 yrs vs 10 yrs) then the interest paid won't be horrible.

If people wait to buy in 3 years until they have saved up the money then chances are the contract they want will be more expensive.

Prime example - We paid cash at the end of 2015 for an AK resale. Paid ~$80 per point. If we had to wait to save up the money to then buy 3-5 years later then the price per point currently is at $110-115 per point = $30-35 per point more. So someone waiting until we had the cash to buy wouldn't have saved anything and probably would cost more in the end. So I can see with the consistently rising price per point -- in the DVC world it doesn't always make sense to wait until you have the cash for the purchase. BUT -- it should be financed with the best intentions of paying it off as soon as possible.

So in my example above we bought a 120 pt AK contract. At $35 per point more to buy today would be an extra $4200!! I know we really don't know where the market will go -- there could be another recession and people dumping contracts cheap but the odds are if the market stays strong we will only continue to see direct and resale prices rise. So if someone can buy and can comfortably afford the monthly payments and will have it paid off in 5 years it can make sense to finance.

Not to mention losing the value of 3 to 5 years of points. Even if you rented them they would be worth 120*14.00*3 years = $5,040.00

This is one thing that people don't think about. Prices tend to go up over time, even in the resale market. So, if you bought it for $11,000, within a few years you could probably sell it for $15,000. So, by owning, even if you finance, you come out even more ahead when you resell it.

The same thing applies on the other side if you wait to buy. You actually lose more by not buying. I have passed up buying DIRECT on some Disney properties, because I thought the price was too high, then I missed out on 5 or 6 years of use, then I bought the same resort on the Resale market for 35% MORE than the original Disney Direct price! I would have done much better to just buy it right off, and finance it.

 

[SDSUrulez]

There are a few assumptions that are not accurate with Fredrick's calculations. The main one being that he didn't factor in an increase to the maintenance or points needed to actually rent a room for a day. The other factor is the opportunity cost associated with putting down a large amount of funds and having it sit there to basically pre-pay your vacations. The last one is that the trend of the point value is that I think that you are looking at it through the lens of a massive economic run. Values have increased but imagine they would soften in the event of a recession.

If you are committed to going to WDW or another Disney property every year, then it probably isn't the worst idea but as a few have mentioned it won't help if you need funds. If you are a family who does one vacation a year and might go to a Disney location every third or forth year then this obviously isn't right for you.

 

[zavandor]

This is one thing that people don't think about. Prices tend to go up over time, even in the resale market.

Prices for contracts have gone up much more than inflaction rates. However, this is because, I think, Disney underestimated the value of DVC initially. I cannot see it growing in the next ten year at the same rate it grew in the last 10. People who financed DVC in 2009 after the big recession now have probably a contract that is worth resale more than they paid direct. I don't think it will happen the same in 2029, because the starting price is much higher now, a recession could hit us anytime and because the new resale restrictions will cause some damage to resale prices.

Writing a suggestion on a board like the DIS is difficult because all sort of people in all sort of situations read those. Saying "most of the time financing is a bad decision" is better because it's true in most cases. Then there are people in very specific situations when this is not true. For example I've read someone financed for one year because they were waiting for some asset to became available. I can say in that case, financing was a good idea. But that is the exception, not the rule.

 

[mjlash22]

We, in a way, "financed" ours. We had 60% of what was needed in cash at the time of purchase. Had a credit card offer come through for 0% 12 months financing (which I knew I could pay off the 40% balance in that time frame). Not to mention the card I charged the DVC purchase to got me 3x travel points! Double dip "finance" win!