Utilizing Offered Third Party Financing to Purchase A Timeshare
Are you inadvertently applying for Third-Party Financing?
Most perspective timeshare buyers are surprised when, while in the midst of their timeshare presentation, they are, usually without request, offered third party purchase financing, in the form of a credit card, to assist with closing their timeshare deal. The transaction gets a little cloudy however, as there’s no sign of a third-party lender present at the presentation.
The “offer” is communicated with little fanfare by the assigned timeshare salesperson who often seamlessly ‘rolls it in with the deal’. So much so, in fact, that many perspective buyers are not even aware that they’ve somehow, when they signed their timeshare purchase agreement, also inadvertently applied for a loan offered (and apparently received), not by the timeshare developer (although that is also a strong possibility), but by a third-party finance company, quite possibly a major bank. I use the term ‘cloudy’, because it’s been reported to me on many occasions that the new timeshare owners were unaware that they incurred a debt with a company separate and distinct from the timeshare developer. Although that may sound a bit implausible, knowing how much paperwork is put in front of a new timeshare purchaser combined with the fact that the third party “credit application” is a fairly simplistic one-page affair easily slipped in with the other purchase orientated paperwork for signature, and therefore it’s a story that I personally can easily accept.
Did you know, Third-Party financing is in-addition to the resort mortgage?
The timeshare developer’s motivation for presenting their prospective buyer this ‘opportunity’ is fairly clear. By ‘rolling in’ a third-party loan typically averaging around $10,000 without fully explaining to an already information overloaded prospect that this is a third-party obligation that the buyer is taking on in addition to the resort mortgage note also applied towards the purchase price, makes the deal ‘more doable’ (at least in the short run) for the purchaser in the sense that they don’t have to come out of pocket much if at all to purchase this interest.
Typically, the borrower’s obligation to begin to repay this third-party debt is delayed for six months along with zero-interest during this ‘introductory period’.
Thusly the developer’s sales agent can effectively soft peddle the over-all financial aspects of the acquisition costs by using terms like ‘interest free loan’ and ‘no payments for half a year’, all the while speaking only to the minimal short-term obligation of the acquisition. While it’s accurate suggest that an astute buyer ought to be able to keep his/her financial wits about them while finalizing the transaction, quite often the purchasers are the fairly young and uninitiated, or perhaps trusting seniors out enjoying their holiday in ‘vacation mode’ who have just been subjected a multiple-hours long tour and sales pitch, who just may have gotten a little too caught up in the moment to be wary or suspicious. Recall that all timeshare purchases are ‘closed’ the same day of the initial resort presentation, so there’s little opportunity for new purchasers to conduct much, if any, due diligence prior to purchase.
Is that third-party financing a blessing or a curse?
So, to the question raised in our title, is third-party financing when acquiring a new timeshare, a curse or a blessing? Certainly it’s at least a partial blessing if, when the dust settles, the new owners are pleased with their new timeshare acquisition over their period of ownership. I say a partial blessing because after the promotional period expires six months down the road, double digit credit-card based interest rates roar in with a vengeance
When these payments are triggered, the purchase is still fairly new and perhaps even yet untested if the new owners haven’t utilized their vacation acquisition and thereby sampled the merchandise to determine their level of satisfaction. However, happy or not, along with their new third-party payment and the underlying resort mortgage debt, another resort payment is getting ready to be added to the mix. This will be the annual maintenance fee payment. This payment may surprise the new owners a bit as although it’s part and parcel of the total overall set of required resort payments, this obligation is to the property owners association, a separate entity (although typically controlled in part through the developer via its management company) who annually compiles the costs of operating the resort and assess’ each owner for their proportionate share of that operation fee.
Is the Third-Party financing costs comparable to simply booking that annual vacation?
The economic analysis then of the timeshare purchase with all its separate debt components becomes a bit more complex. To really analyze the entire transaction, we must factor in some variables.
For example, when you are trying to determine the annual cost of operating your automobile, you take the purchase price of your estimate how long you intend to retain it, say five years, deduct the estimated future trade-in or resale ‘blue-book’ value of the car, divide that sum by five, and you have your estimated annual cost depreciation, which you then add to the cost of maintenance and fuel to arrive at the annual estimated cost of operation.
However, a quite different calculation is necessary with a timeshare interest. Since most timeshare owners cannot anticipate any funds back upon termination of ownership, the annual cost becomes the total of annual maintenance fees plus the total acquisition cost of the initial purchase, factoring in, of course, repayment of the included third-party loan. Assuming that the rising annual maintenance costs roughly equal the cost of a comparable vacation, (an exercise you can perform by going to a website like Expedia or Travelocity, locating the asking price of say a weeks’ vacation at a comparable-or maybe even your same resort- and comparing that cost to your annual maintenance fees) then factor in your total purchase costs which you must then spread out over your estimated number of years of ownership to estimate your annual vacation cost.
If, upon completing the above analysis, you’re left wondering why you expended the initial purchase price including the third-party financing loan, when you could have simply booked your annual weeks’ vacation just before the commencement of the trip and eliminated the ongoing maintenance fee liability that all timeshare owners are personally obliged to pay regardless of whether they were able to use their interest that particular year, along with their initial vacation plan acquisition costs, you’re not alone!
We are now at the point where we can view this uninvited loan offer that was so easy to obtain for so many timeshare buyers through a far different looking glass. Unhappy timeshare owners who are now seeking relief from their timeshare interest now must face yet another hurdle in their quest to be free of their onerous ownership. In fact, with the benefit of some hindsight, purchasing a future vacation experience with today’s dollars was probably not a terrific economic move to begin with. To add to that dynamic, to borrow money to fund a future vacation experience is even more unwise!
Respectfully submitted,
Michael D. Finn, Esq.
Disclosure: This article is for information purposes only and is not intended as legal advice. Opinion are of the writer only.