To finance or not to finance

[Meandnevaeh]

The issue with financing for me, and why I think it's to be avoided where possible, is the impact of finance charges on the total cost of DVC. People tend to look at financed DVC purchases in one of two (bad) ways:

1.They say "My DVC contract cost $15000," and never look at the additional money paid out in finance charges. A $15K loan, paid over 10 years, at 9%, is saddling you with around $8K in interest. So, if you finance the whole thing and take the full 10 years to pay it off, your DVC purchase cost you $23000, not $15000.

2. Nowadays, many sellers of financed products, from car dealers to timeshare salesman, present the deal as "X dollars per month". The buyer says "wow, I can afford that!" and never considers what they're really paying (see above).

At some point, the finance charges can drive the cost high enough that it's no longer the good value the buyer first thought it was.

But some people that buy direct and pay cash, pay the same $24000 for that exact same 150 pts resale at $100/pp as they would 150 pts at $160/pp direct, just sayin, finance resale can be pretty close to direct cash rates, I know it's variable by # of points and per point cost resale. Just sayin, so no, it's not necessarily that good deal, but to someone that can't just pay cash up front, doesn't mean they can't afford it.

 

[Shanti]

If you have to finance, you are biting off more than you can chew. No, don't do it.

 

[suebeelin]

Interesting perspective re: dvc being financed at the highest interest of any loan you have. That includes mortgages and student loans, after adjusting for any tax breaks.

On our side, it means dvc is 1.61% to upwards of 7%, even though we technically paid cash for the purchase.

The reason we are keeping the higher interest loans is bc that one might get wiped out (forgiven) in a handful of years if hubby fulfills certain criterias after training.... And we might go that route.

The lower interest rate? It's so low I consider it free money at 1.61%. It's my student loans.

Plus if I die, all federal student loans disappear and will never be part of my estate.

But yah, I wholeheartedly agree that one should not finance a luxury purchase like dvc.

 

[freediverdude]

I guess I will partially disagree with everyone, in that I think that even if you pay the highest rate for financing from Disney (currently 17.5%), that DVC over the long term is still a good value. Yes, you will be paying double over 10 years, but, you'll still break even at some point, usually between 10-15 years instead of 7 when paying cash. And then after that you're still getting huge discounts on your stays. And, in the meantime, Disney's hotel prices will have gone way up (care to guess how much the Polynesian rack rates will be in 2026 if they average $600 now?), member fees will have gone up at a slower pace relatively, and your points will most likely still be able to be sold for a lot of money. When you start doing the math as to how much you're paying per point over the 50 years, it still makes sense even including the financing cost.

 

[TheGecko]

I guess I will partially disagree with everyone, in that I think that even if you pay the highest rate for financing from Disney (currently 17.5%), that DVC over the long term is still a good value. Yes, you will be paying double over 10 years, but, you'll still break even at some point, usually between 10-15 years instead of 7 when paying cash. And then after that you're still getting huge discounts on your stays. And, in the meantime, Disney's hotel prices will have gone way up (care to guess how much the Polynesian rack rates will be in 2026 if they average $600 now?), member fees will have gone up at a slower pace relatively, and your points will most likely still be able to be sold for a lot of money. When you start doing the math as to how much you're paying per point over the 50 years, it still makes sense even including the financing cost.

I have a hard time believing the room rates can continue to increase at the current rates, with stagnant wages in this country. Disney was built on being affordable vacation (never cheap though). When you start talking 600 plus a night, it is going to turn off the upper middle class folks at some point (probably already here with the push to convert every Deluxe property to DVC). The value is just not there for a regular vacation, and it becomes more of a once in a lifetime event.

To put it another way, the conversion to DVC on existing resorts has allowed Disney to keep rates artificially high by controlling inventory. DVC only makes sense when compared to undiscounted rack rates, as does the argument to finance. If you go by the price to rent points versus current purchase price PLUS finance charges payback at current direct prices is pushing 2 decades.

 

[sndral]

I agree I had monies I did not want to touch
I took a loan against myself it pays me back 4.5%, I had funds I could withdraw as a loan but all I am doing is paying myself back

I assume this was a retirement account loan. The down sides there are that you lose out on the potential earnings in the interim and if something does happen (no longer employed) it is payable up front else it's counted as an early withdrawal with penalties and taxes.

IMO there are 2 additional downsides:
1) Most retirement accounts are tax deferred so you are paying lower taxes on current income but when you borrow from them you 'pay yourself back w/ interest' on taxed money so your true cost is the interest rate you pay yourself plus your marginal tax rate and then when you retire and withdraw from the account you will pay taxes on that money again - so a double tax hit.
2) Lost potential gain, you've locked your gain on that withdrawn money at 4.5%, depending on the market you lose whatever that money would have made if the investment the money was in outperforms 4.5%. Plus no dividends. This consequence is less sure as the market could be down, but the longer the repayment term the more likely you'll miss up market gains.

 

[freediverdude]

I have a hard time believing the room rates can continue to increase at the current rates, with stagnant wages in this country. Disney was built on being affordable vacation (never cheap though). When you start talking 600 plus a night, it is going to turn off the upper middle class folks at some point (probably already here with the push to convert every Deluxe property to DVC). The value is just not there for a regular vacation, and it becomes more of a once in a lifetime event.

To put it another way, the conversion to DVC on existing resorts has allowed Disney to keep rates artificially high by controlling inventory. DVC only makes sense when compared to undiscounted rack rates, as does the argument to finance. If you go by the price to rent points versus current purchase price PLUS finance charges payback at current direct prices is pushing 2 decades.

IMO the cost shouldn't be compared to renting of points. With renting you're kind of taking what you can get- there are some things you can't reliably get with renting, and it's also a lot more hassle trying to find what you want, as well as not being able to control the reservation. Now that I'm an owner it's a completely different experience as far as checking the availability and adding/changing things than when I was renting.

Disney doesn't seem to have any problem filling the rooms so far- now has it turned some people off or priced some people out? Yes, it has. But when you're talking 500-800 rooms each at most of these monorail and Epcot resorts, and the fact that WDW is a worldwide destination with 20 million people visiting annually, you only need a tiny fraction who are willing to pay the deluxe prices. I will get off on a tangent here if I start talking about yes with discounts the resorts can be more like $400 a lot of the time, but just think what would happen if Disney priced the Contemporary or Polynesian at $100 or even $200 per night. You wouldn't even be able to get a room unless you knew somebody, or lucked out on the phone or computer by clicking at just the right time when reservations opened up. There's only so many of these rooms like you said, and there's only so much room to build in these desirable locations (if they had been able to fit a larger DVC building in the Grand Floridian grounds I'm sure they would have). So in a way if you look at it in a different way, DVC is also a way of rationing these highly desirable rooms in a way that people can afford and justify instead of looking at paying the rack rates and hoping for a discount forever.

 

[Dean]

IMO the cost shouldn't be compared to renting of points. With renting you're kind of taking what you can get- there are some things you can't reliably get with renting, and it's also a lot more hassle trying to find what you want, as well as not being able to control the reservation. Now that I'm an owner it's a completely different experience as far as checking the availability and adding/changing things than when I was renting.

Disney doesn't seem to have any problem filling the rooms so far- now has it turned some people off or priced some people out? Yes, it has. But when you're talking 500-800 rooms each at most of these monorail and Epcot resorts, and the fact that WDW is a worldwide destination with 20 million people visiting annually, you only need a tiny fraction who are willing to pay the deluxe prices. I will get off on a tangent here if I start talking about yes with discounts the resorts can be more like $400 a lot of the time, but just think what would happen if Disney priced the Contemporary or Polynesian at $100 or even $200 per night. You wouldn't even be able to get a room unless you knew somebody, or lucked out on the phone or computer by clicking at just the right time when reservations opened up. There's only so many of these rooms like you said, and there's only so much room to build in these desirable locations (if they had been able to fit a larger DVC building in the Grand Floridian grounds I'm sure they would have). So in a way if you look at it in a different way, DVC is also a way of rationing these highly desirable rooms in a way that people can afford and justify instead of looking at paying the rack rates and hoping for a discount forever.

IMO the only two reasonable comparisons financially are to renting points from a member and to what one would have paid had they not owned. Using the DVC rack rate as some are prone to do is a fools comparison IMO. There are clearly advantages and disadvantages to owning vs renting.

 

[northshoremama]

everyone's input has been great...i really appreciate the different perspectives.

i wanted to update y'all on my decision to finance...yes, i know...i went against most of your advice, but i was able to find a decent interest rate. 3 years, 5.9% (finance cost was about $1,570). i found a decent resale listing for aulani and put in an offer. i'm less than a week into the ROFR process, so we'll see what happens by the end of april. if we pass this process, with all the costs (contract cost + financing), our 160-point contract will come out to be $113/point (which is in-line with the higher-end priced contracts for aulani right now.

i'm really excited about this...and hope that we pass the ROFR process by the end of this month...fingers crossed!!!

 

[freediverdude]

everyone's input has been great...i really appreciate the different perspectives.

i wanted to update y'all on my decision to finance...yes, i know...i went against most of your advice, but i was able to find a decent interest rate. 3 years, 5.9% (finance cost was about $1,570). i found a decent resale listing for aulani and put in an offer. i'm less than a week into the ROFR process, so we'll see what happens by the end of april. if we pass this process, with all the costs (contract cost + financing), our 160-point contract will come out to be $113/point (which is in-line with the higher-end priced contracts for aulani right now.

i'm really excited about this...and hope that we pass the ROFR process by the end of this month...fingers crossed!!!

I think in 5-10 years, you will be very glad that you made this decision, even with the financing. My guide was telling me he was expecting the price to be $200 a point in the next few years. Congratulations!

 

[northshoremama]

I think in 5-10 years, you will be very glad that you made this decision, even with the financing. My guide was telling me he was expecting the price to be $200 a point in the next few years. Congratulations!

THANK YOU, freediverdude! excited and nervous at the same time!

 

[crisi]

I guess I will partially disagree with everyone, in that I think that even if you pay the highest rate for financing from Disney (currently 17.5%), that DVC over the long term is still a good value. Yes, you will be paying double over 10 years, but, you'll still break even at some point, usually between 10-15 years instead of 7 when paying cash. And then after that you're still getting huge discounts on your stays. And, in the meantime, Disney's hotel prices will have gone way up (care to guess how much the Polynesian rack rates will be in 2026 if they average $600 now?), member fees will have gone up at a slower pace relatively, and your points will most likely still be able to be sold for a lot of money. When you start doing the math as to how much you're paying per point over the 50 years, it still makes sense even including the financing cost.

Here is where I have problems with that line of thinking. And I think that for some people financing is wise, and for some its foolhardy, and the problem is that many people don't have the financial sense to know and justify foolhardy decisions with your type of logic.

If you haven't saved enough for DVC out of pocket, but can afford payments, you've been spending as much as you make. You are going to cut spending somewhere else to make the payments. Which may be easy if you spend a lot on luxuries. Or it may be moot if your payment for your student loans are disappearing and you are going to use that money towards DVC. But the money comes from somewhere, and it isn't extra, or it would be in the bank or investments.

Hotel rooms will go up - but everything involved in a Disney vacation will go up over the course of ownership. Ticket prices have doubled in ten years. Unless you think your income is going to go up - and for most people, wages have been pretty stagnant, you are going to have to make room in your budget for those costs as well. And if your wages stay stagnant, and you haven't been saving money to date, your long term prospects for the ever increasing cost of Disney don't look great. Especially if you get thrown a financial curve ball.

As I said, there are circumstances where financing is actually wise. And some where its neutral. But generally, if you need to finance over ten years at 17.5%, you are likely to get painted into a corner with the other costs.

 

[freediverdude]

Here is where I have problems with that line of thinking. And I think that for some people financing is wise, and for some its foolhardy, and the problem is that many people don't have the financial sense to know and justify foolhardy decisions with your type of logic.

If you haven't saved enough for DVC out of pocket, but can afford payments, you've been spending as much as you make. You are going to cut spending somewhere else to make the payments. Which may be easy if you spend a lot on luxuries. Or it may be moot if your payment for your student loans are disappearing and you are going to use that money towards DVC. But the money comes from somewhere, and it isn't extra, or it would be in the bank or investments.

Hotel rooms will go up - but everything involved in a Disney vacation will go up over the course of ownership. Ticket prices have doubled in ten years. Unless you think your income is going to go up - and for most people, wages have been pretty stagnant, you are going to have to make room in your budget for those costs as well. And if your wages stay stagnant, and you haven't been saving money to date, your long term prospects for the ever increasing cost of Disney don't look great. Especially if you get thrown a financial curve ball.

As I said, there are circumstances where financing is actually wise. And some where its neutral. But generally, if you need to finance over ten years at 17.5%, you are likely to get painted into a corner with the other costs.

Well I agree that you need to make sure you have the income to make the payments, and think that you likely will for the next 10 years. But if you're someone like me, who was spending hundreds or thousands of dollars every year on Disney hotels, and had been doing that for the past 15-20 years, why not just go ahead and make it a monthly payment and lock in the costs. Now I know absolutely for sure that I'll be able to stay at the Poly every year no matter what the hotel rates are, and won't have to worry about coming up with a huge lump sum for each Disney trip. Looking back I should have done it about 10 years ago (although around that time I didn't really care for SSR).

But if it's a person who has only been once or twice, and they aren't sure, and can't pay cash, then I agree that's a bit different. But Disney does ask those questions when you sit down with a guide for the first time, or at least mine did. He made sure that I "fit the profile" of someone who would benefit. As far as the ticket prices, I guess I do have it better than some because I budget the Florida resident monthly payment plan as well, so that I always have an annual pass. So the trip costs for me are mostly food and souvenirs now, because I live about an hour away. I probably live close enough to be a lifestyler, but I don't know how I could make enough money doing that, I would love it though. So, true, maybe I am a special case, I don't know. But in the end you still end up with a valuable asset even if you finance. And if you make the first year or two worth of payments, you're likely not underwater anymore on the loan and could sell, so I don't really see the downside here if someone fits the profile.

 

[Dean]

Well I agree that you need to make sure you have the income to make the payments, and think that you likely will for the next 10 years. But if you're someone like me, who was spending hundreds or thousands of dollars every year on Disney hotels, and had been doing that for the past 15-20 years, why not just go ahead and make it a monthly payment and lock in the costs. Now I know absolutely for sure that I'll be able to stay at the Poly every year no matter what the hotel rates are, and won't have to worry about coming up with a huge lump sum for each Disney trip. Looking back I should have done it about 10 years ago (although around that time I didn't really care for SSR).

But if it's a person who has only been once or twice, and they aren't sure, and can't pay cash, then I agree that's a bit different. But Disney does ask those questions when you sit down with a guide for the first time, or at least mine did. He made sure that I "fit the profile" of someone who would benefit. As far as the ticket prices, I guess I do have it better than some because I budget the Florida resident monthly payment plan as well, so that I always have an annual pass. So the trip costs for me are mostly food and souvenirs now, because I live about an hour away. I probably live close enough to be a lifestyler, but I don't know how I could make enough money doing that, I would love it though. So, true, maybe I am a special case, I don't know. But in the end you still end up with a valuable asset even if you finance. And if you make the first year or two worth of payments, you're likely not underwater anymore on the loan and could sell, so I don't really see the downside here if someone fits the profile.

My opinion is that being able to make the payments is not the same as being able to afford it. If one is financing Disney trips when they can't afford it (i.e. going when they have consumer debt) then it might be the lessor of evils, that is not the same as it being a good choice. Many years ago I included exceptions such as having a windfall coming or to avoid a price increase when the difference between retail and resale was roughly 15%. I now believe that to have been poor advice due to the risk involved in financing and having debt. It'll take more than a couple of years of paying on financing to be break even trying to sell later and even that option makes some pretty hefty assumptions long term IMO. But there are worse decisions one can make. The reality is that those who got bit aren't likely on this BBS so success stories in financing are of no importance, IMO.

 

[freediverdude]

Well we all know that Dean thinks that unless you have the cash to just write Disney a check for the whole thing and not even come close to emptying your bank account that you shouldn't buy, but I don't think that's typical. I'm glad that Dean is in that situation, good for him, but most of us would never be able to even visit Disney or had the wonderful experiences we have had over the years if we had had to wait until we were in that kind of financial situation, if we ever would be. You just can't take it with you. You have to live while you can, this is the only life we get. Even though I got into debt over some of those trips, there was no way I would ever trade those experiences back for not having that debt. Some of the best experiences of my life were being there for the pre-opening of the Harry Potter lands, the passholder previews for things like Mission:Space or the Animal Kingdom, or Everest. Could I have been a little more financially secure had I sat home for the past 15 years and not done anything and saved? Yes. But I don't regret it one bit. I guess this is getting off topic now.

I also think some of it is relative. Someone purchasing a $50,000 or $75,000 VGF contract and then not being able to afford the payments is a little different than someone like me buying 50 points and financing at $130 per month. My loan payments are less than a lot of people's dues payments, lol.

 

[crisi]

Well I agree that you need to make sure you have the income to make the payments, and think that you likely will for the next 10 years.

How do you know you'll have the income to make payments? You haven't had the income to save that money over the years - and a job loss could set you back. Four months ago I was making six figures a year - since December I've been home ill and will probably never go back to my high stress high income job. Its a good thing our debt is a $300 a month mortgage and my husband's income can cover the bills.

There are a few professions where the demand is such that any job loss would be unlikely temporary - or a few people at a place in their professions where they are in such demand that they don't need to worry. But those people are the exceptions.

 

[Dean]

Well we all know that Dean thinks that unless you have the cash to just write Disney a check for the whole thing and not even come close to emptying your bank account that you shouldn't buy, but I don't think that's typical. I'm glad that Dean is in that situation, good for him, but most of us would never be able to even visit Disney or had the wonderful experiences we have had over the years if we had had to wait until we were in that kind of financial situation, if we ever would be. You just can't take it with you. You have to live while you can, this is the only life we get. Even though I got into debt over some of those trips, there was no way I would ever trade those experiences back for not having that debt. Some of the best experiences of my life were being there for the pre-opening of the Harry Potter lands, the passholder previews for things like Mission:Space or the Animal Kingdom, or Everest. Could I have been a little more financially secure had I sat home for the past 15 years and not done anything and saved? Yes. But I don't regret it one bit. I guess this is getting off topic now.

I also think some of it is relative. Someone purchasing a $50,000 or $75,000 VGF contract and then not being able to afford the payments is a little different than someone like me buying 50 points and financing at $130 per month. My loan payments are less than a lot of people's dues payments, lol.

I disagree that it has to be a choice of enjoyment vs no debt. One can have more if they don't go into debts for frills. Personal finances are mostly about choices and intentions rather than math. These are the type of choices that keep people in debt in general. I'd agree it's relative but only as to how bad the choice was not good vs bad. But we see it across the nation in many aspects of life where there is little or no delay of gratification. As I stated earlier, it's the failures that define this not the ones who didn't completely fail.

 

[freediverdude]

How do you homeowners know that you'll have the income to pay the mortgage for the next 30 years? You don't. It's all a risk. There is no such thing as complete safety. Your bank could suddenly announce that derivatives made them go under tomorrow and you have no money. You could step off a curb and get flattened by a bus. You could get a sudden illness like Crisi. All the more reason to do what you can while you can. I would be very upset if I had sat and saved all those years and then still wouldn't be able to enjoy it.

 

[Dean]

How do you homeowners know that you'll have the income to pay the mortgage for the next 30 years? You don't. It's all a risk. There is no such thing as complete safety. Your bank could suddenly announce that derivatives made them go under tomorrow and you have no money. You could step off a curb and get flattened by a bus. You could get a sudden illness like Crisi. All the more reason to do what you can while you can. I would be very upset if I had sat and saved all those years and then still wouldn't be able to enjoy it.

But it's not all the same risk. Much of the risk can be controlled.

 

[crisi]

How do you homeowners know that you'll have the income to pay the mortgage for the next 30 years? You don't. It's all a risk. There is no such thing as complete safety. Your bank could suddenly announce that derivatives made them go under tomorrow and you have no money. You could step off a curb and get flattened by a bus. You could get a sudden illness like Crisi. All the more reason to do what you can while you can. I would be very upset if I had sat and saved all those years and then still wouldn't be able to enjoy it.

There is necessary risk and unnecessary risk. I need a place to live and I can take steps to reduce the risk that I can't pay my mortgage. For instance, having disability insurance and an emergency fund. Being a two income family. But those things aren't likely to cover 100%. So I don't take on obligations that aren't necessary. Disney is by no means necessary. Time off and away is - but it doesn't have to be stays at the Poly.

There is no such thing as complete safety - there is a difference between driving a Volvo at the speed limit wearing a seatbelt and riding a motorcycle at 100 MPH with no helmet.