Who actually financed their DVC purchase?

[dizzneebabe]

We financed through Disney at the 10.5%. The payments are very manageable for us so it makes it a better choice for us and I'm not afraid to say it!

We write off the interest on our taxes (it's not that much) and we agree with some other posters out there--it's an investment in our family and our family's memories. If we waited until we had the cash, the kids would be grown (lol) and then what?

We're big believers in living for today. We still plan for the future (401K and such) but we need to make the most of what we have now. The kids (and us) are only young once!

There is no wrong and right answer here--it's what's right for you and your family.

 

[supersuperwendy]

I can't believe how my little question has grown into such a long thread!

I really appreciate everyones responses! We are going to finance and we have our own guide now! She sent the me prettiest book all about the DVC and it's resorts!

We are just waiting a little bit since we have a trip coming up in....58 days!!!

 

[joech]

Yes - even if you don't finance, you can make a deposit on Day 1 and then pay the balance in 30 days. This gives you time to assemble the necessary cash in one account.

QUOTE]

Our balance was due in 10 days from the day we signed our contract and make the deposit.

 

[Dina]

Anyway, to me, it makes no sense to be saving up to buy into DVC with cash and to go on a Disney trip(s) with a cash reservation, only difference is if you sending money to Disney via financing or a reservation..

Completely agree. We financed when we bought 2 years ago, and will pay it off as soon as I'm out of nursing school in 9 months. I don't have any student loans since we paid my tuition in cash, so this is the first thing we will payoff. If we had waited, we would have just shelled out more money for cash reservations, plus the points would be more expensive when we actually bought. We have no regrets about financing. We financed at 10% (I'm sure we could have gotten better somewhere else, but then we would have had closing costs), the payments are very manageable, and we've enjoyed the tax writeoff.

 

[WDWcanuck]

Just a question about financing....

I know that some financing loans are built so that if you finance at 5 years, they charge you the principle purchase, plus 5 years interest, no matter how many lump sum payments you make during the term. Ex: You finance $1000 over 5 years, and even though you make larger payments, you still pay for interest on 5 years worth of the amount loaned.

I know I will have a significant payment in March; however, I don't want to sign on now if I'll be paying the interest on 10 years no matter what. If not, I'm signing up!

I hope this makes sense, and I hope someone can help.

Thanks.

 

[tjkraz]

Just a question about financing....

I know that some financing loans are built so that if you finance at 5 years, they charge you the principle purchase, plus 5 years interest, no matter how many lump sum payments you make during the term. Ex: You finance $1000 over 5 years, and even though you make larger payments, you still pay for interest on 5 years worth of the amount loaned.

You only pay the actual interest that accrues while the purchase is financed.

If you take out a 10-year loan and pay it off in one year, you only pay interest based upon the principle balance during the one year period.

 

[WDWcanuck]

You only pay the actual interest that accrues while the purchase is financed.

If you take out a 10-year loan and pay it off in one year, you only pay interest based upon the principle balance during the one year period.

Thanks for the reply! Much appreciated.

Alright, now I'm buying! I'll post when I close!

 

[JustSayin]

It would be far better for most people not to finance, but there are exceptions to every rule.

My wife and I have no unsecured debt, and we looked at it and figured that it would take us about 4 years to save up enough to buy in for cash. When we looked at how much DVC increases in price every year, and the cost of the hotel stays that are covered by our DVC points (only looking at hotel cost, not package cost), we save more money by financing than it cost us . We are paying off at an accelerated rate thereby limiting our interest cost, and that helps a lot. We also make our extra payment using the Disney Visa, and that gets us an extra percent back.

I guess if you truly can afford DVC, financing isn’t a terrible idea as long as you pay off quickly in order to limit your interest costs. If you have unsecured debt, you really shouldn’t be looking at financing anything non-essential, and a Disney vacation is NOT essential no matter how much we might think otherwise.

 

[pilferk]

I see sooo many posts about how it's better and makes more sense to purchase your DVC with cash upfront. For us that just wouldn't be possible. We would have to finance the purchase. Is that uncommon or unwise? Thanks!

Uncommon? Certainly not.

From a strictly financial planning standpoint....it's often not a great decision, IMHO. You're financing, at a relatively high rate (for real estate...not for credit cards, I guess) a luxury purchase, and possibly doing it over a LONG period of time (10 years), which really racks up the interest. For some, that might be OK. For an awful lot more, maybe not so much.

That interest radically changes the "value" of DVC, and throws the break even point much further out into the future...it also raises your true "cost per point", because at the end you have to factor in the interest you've paid on those points. It could, going for maximum term, almost double your costs.

For example:

You buy 200 points at AKV. The price is $104 per point, less $8 per point discount.

You have to put $2080 down on your 19200. So you're financing $17120.

If you get NON-preferred financing, and go for MAX term (10 years, I think?)....I think the interest rate is like 14%.

Assuming you take the full term to pay off, your total interest paid would be $14777.94, which means your TOTAL price would be 33977.94, or about $169.89 per point.

With preferred financing, max term, it's a LITTLE bit better. You'll pay around $11k for the loan, bringing total cost to about $30400, or around $152 per point.

See why many people say it's not a great idea to finance?

Now, if you can do it via home equity (drastically lower interest rate) and pay it off over the same term, you'll half that loan cost, which makes it a little more palatable...but still, as you can see, the interest you pay REALLY hurts the "value" of DVC.

Keep in mind, there may be a tax deduction for you in the interest you're paying, which might help a bit in all this "figuring".

I'm certainly no personal financial analyst, and I'd never tell anyone how to spend their money. This is a family decision, and obviously for a lot of people they feel financing DVC is the way to go. Heck, we did it (preferred, max term, but with a hefty down payment) just to make the monthly payments affordable "between" bonuses and tax returns...and paid it off in just under (or maybe just over..can't remember) a year. We paid under 1000 in interest, which was a figure I could live with. Everyone needs to figure out what figure they can live with is...

 

[JonS99]

With preferred financing, max term, it's a LITTLE bit better. You'll pay around $11k for the loan, bringing total cost to about $30400, or around $152 per point.

See why many people say it's not a great idea to finance?

And on the flip side, if a person needs 4 years to save up the entire cost, they could end up paying $120/point in 2012 PLUS the cost of a cash reservation...

So IF a person is going to go to WDW multiple times during the period they are also saving for DVC, they might as well finance it now..

 

[twinklebug]

And on the flip side, if a person needs 4 years to save up the entire cost, they could end up paying $120/point in 2012 PLUS the cost of multiple cash reservations...

So IF a person is going to go to WDW multiple times during the period they are also saving for DVC, they might as well finance it now..

Hope you don't mind, I edited your post because it's so true, particularly if the person (like most DVCers, I assume) will be heading to Disney yearly.

 

[pilferk]

And on the flip side, if a person needs 4 years to save up the entire cost, they could end up paying $120/point in 2012 PLUS the cost of a cash reservation...

So IF a person is going to go to WDW multiple times during the period they are also saving for DVC, they might as well finance it now..

As I said, everyone has to find a number they're comfortable with.

You're thinking you'd spend, with the hypothetical $120 a point. I think , at least $6000 to $10000 on accomodations over that 4 year span....or somewhere around $1500 to $2500 per year. That would be the break even point with your hypothetical price point, right?

$120 per point, net, after discount x 200 points = $24000 (though you wouldn't need to fully fund the $24k in cash...I'm assuming by "saving up" you mean putting money in something that earns interest until it's time to actually buy into DVC...but maybe that's outside the scope of this conversation).

Cost of credit through Disney, max term, depending on rate: $30000 to $34000.

The difference would be $6000 or $10000.

FYI, I think your $120 a point, net, is a TOUCH high if taking into account incentives...you'd be talking a $24 per point increase in "actual" cost, which is higher than we've seen. I think we'll likely see prices at AROUND $120 per point (I'm going to use that number, just to get a good range..but it might be a couple bucks higher), but with the $8 per point incentive still in place, too. That would bear out closer with the historical trends, I think. Given THAT scenario:

200 * $112= 22400

Same cost of credit.

Now the difference is between $7500 and $11600, or $1875/$2900 yearly depending on the rate you get from Disney.

For ME, the cost of that credit, in EITHER the $120 ppt OR $113 ppt scenarios, is still just too expensive for a luxury item (useful or not). I wouldn't pull the trigger, but that's me (and I'm relatively conservative with our money), even when taking into account room costs over the time it takes to save up.

But everyone needs to spend their own money, and make their own decisions.

One other thing: If you have about $2000 per year to spend on Disney cash rooms + the approx $5000 per year in disposable income to "save up" over 4 years to buy into DVC (because the viability of your proposed scenario hinges on your ability to do that, whether you do THAT or finance)....youre' right: likely financing isn't a bad thing. You obviously have the disposable income to handle it, and cost of credit might not be as daunting in comparison to your ability to save. In addition. if you were in that position, and took the credit terms I outlined...you wouldn't need to push the loan to full term, because the difference between your monthly payments and what you would have been "saving up" is pretty drastic, so your cost of credit would be much lower, anyway (provided you took that savings "difference" an applied it back to the principle of the loan).

Actually, in thinking about it, the scenario you outline pretty much nets out to what happened, in practice, for me.

But if your plan is to finance for the full term (10 years) through Disney....I'm just not comfortable with the total cost of that credit, or the eventual price per point calculation.

 

[JonS99]

We are going through this right now, wanting to buy, but waiting to get a credit card paid off, so when we do finance we are able to get it paid off quicker. We ARE going to Disney each year, for us it wouldn't make sense to be saving up for DVC and paying cash reservations, so had to decide to buy in or not go to WDW until we saved up the $$$$, and with young kids it was an easy choice.. Only live once!!


I could account for interest earned while saving, but I didn't because that is probably cancelled out by the tax deduction we get for financing DVC, which I also didn't figure into the equation..