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Buying a vacation home can be hard to justify, especially if you don’t have more than a few weeks each year to relax in it. But a timeshare is one way to take advantage of the perks of property away without covering the whole cost yourself.
Also called interval, fractional share-owned or vacation properties, timeshares may be synonymous for high-pressure sales pitches and hard sells. But the American Resort Development Association says they’re making a comeback.
Get in on the rebound with what you can expect to pay — and how you can finance one — before taking up a timeshare.
Many timeshare companies offer on-site financing with their sales pitch. But it’s not your only option — and it’s often not your most competitive. The average timeshare loan comes with an interest rate of 14% over a 10-year term, but these rates can soar as high as 20% with some clubs.
Before you let a rep convince you to sign up for a new loan, consider these savvy alternatives that can save you a bundle in the long run.
If you have strong credit, consider taking out a personal loan to pay for your timeshare. These loans don’t require collateral, and interest rates typically range from around 4% to 36%. Usually, you can borrow from $2,000 and $50,000, which covers many timeshares, though some lenders offer unsecured personal loans as high as $100,000.
Look for a personal loan from your bank, credit union or online lenders. Banks and credit unions might offer even lower rates than those you’ll find online. But they can take time to process your application, and often with stricter eligibility requirements.
For borrowers who already own a home — or a good part of a home — the equity you’ve built up becomes a borrowing option. Through a home equity loan, you can typically borrow between 80% and 95% of your home’s value.
Because this loan uses your home as collateral, it’s often easier to qualify for than an unsecured personal loan. It also can come with more competitive rates. However, you run the serious risk of losing your home if you default.
Borrowing from your retirement plan can be risky. If you can’t pay it back or you lose your job, you’ll pay hefty penalties for withdrawing from your retirement account before it’s due.
But if you’re certain you won’t leave your job before you repay the loan, borrowing from your 401(k) could be an inexpensive financing option. With most 401(k) plans, you can borrow up to $50,000 and pay it back over five years with a variable interest rate of prime plus 1%. All interest you pay goes back into your 401(k) — though you won’t earn investment returns while you repay your loan.
Using a credit card might make sense if your timeshare is only a few hundred or thousand dollars. Credit cards also be useful for those annual maintenance and membership fees. If you think it’ll take you more than a few months to pay off, consider applying for a new credit card with a promotional 0% APR for the first six to 18 months. That way you won’t pay interest on your balance until the promotional period is up.
When it comes to timeshares, you often have three costs to consider: the purchase cost, the maintenance fee and the membership fee.
This is the main expense when it comes to buying a new timeshare. Purchase costs can range anywhere from $500 to $40,000, though the average is around $10,000. How much you pay depends on factors like the type of building and its location and the time of year you’re purchasing to use it. Studio apartments in an inconvenient neighborhood probably won’t cost you as much as a resort timeshare, for example.
The most popular weeks like Christmas or the Fourth of July — called “red weeks”— tend to be the most expensive. Weeks without as much demand — called “blue weeks” — are less expensive.
Most timeshares come with an annual maintenance fee that can range from $200 to more than $700 each year. This fee covers costs like housekeeping, utilities, weather-related repairs and other upkeep of a vacation home.
Like with the purchase cost, maintenance fees are typically higher with larger timeshares, especially if it’s part of a resort.
Many of the major timeshare companies like Interval International charge an annual membership fee of around $90. If you need help exchanging your timeshare for something different, this fee can go up to $125 for that year.
Vacations can be expensive, even if you have an affordable place to stay. Americans spend an average $2,026 during their timeshare vacations — or about $592 per person — according a 2018 American Resort Development Association report.
The top expenses? Eating out and flying in. To cut back on costs, consider a timeshare near your home, and plan on cooking a few meals in.
By knowing what to expect with a timeshare, you can find a legitimate property that works for you and your family.
It might be tempting to go for the timeshare loan that’s offered in your sales pitch. But you find more competitive rates and terms elsewhere, not to mention options that don’t involve financing at all.
To get the strongest deal you’re eligible for, compare all options available to you against your costs. Learn more about personal borrowing in our comprehensive guide to personal loans.
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