What Is a Timeshare Loan?

Timeshare loans offers financing if you're looking to buy vacation property. Typically, you'd pay back a timeshare loan over five to 10 years, though interest rates are high compared to mortgages. Usually, timeshare loans are offered by the developers or as an unsecured personal loan.

Here are some fast facts:

• APR: Between 12% and up to 20%

• Terms: 5 to 10 yers

• Offered by: Developers, specialty lenders, certain banks or credit unions

• Credit reporting: Some lenders may report to the credit bureaus

• Other costs: Timeshares tend not to gain value, so you may not make money if you choose to sell.

Key Takeaways

• Timeshare loans carry steep costs. You'll usually face annual percentage rates between 12% and 20% and repayment terms of five to 10 years. You don't get the same protections as a mortgage, as those are heavily regulated. Borrowing $20,000 at 18% over eight years can cost roughly $19,000 in interest alone.

• You have better financing options. Personal loans, home equity loans and HELOCs often beat developer financing on rate, though HELOCs put your home at risk if you can't pay.

• Pay cash when you can. Timeshares rarely gain value and are tough to resell, so skip the loan if possible, compare at least three lenders and budget for ongoing maintenance fees before signing.

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How Does a Timeshare Loan Work?

A timeshare loan, however, is a short- to mid-term loan that rarely builds any resale value and is more comparable to a personal loan. You make monthly payments, just like you would with a mortgage, but often have little or nothing to show for it at the end of the term.

Timeshare loans can be arranged in different ways. They may grant deeded ownership or provide a right-to-use contract. Regardless of how your loan is structured, you should know that these loans often carry very high interest rates, sometimes more than 20%.

Example of How Timeshare Loan Repayment Works

• You're borrowing $20,000.

• The loan's APR is 18%.

• Your repayment term is 8 years.

• Your monthly payment is about $408.

• Your total interest is around $19,000 in interest.

Many people assume that a timeshare loan functions like a mortgage, but they are quite different. Mortgages are long-term loans secured by the property, allowing you to build equity over time. 

Common Timeshare Loan Options and Alternatives

If you're thinking about purchasing a timeshare, you'll want to understand the financing options available. Here are some of the most common.

Developer and/or On-Site Financing

Best for: High-income individuals with a strong credit score

A common way for people to finance a timeshare is through the developer or resort. This usually happens during a timeshare presentation, where their sales team offers limited-time savings or other perks in exchange for quick financing. Unfortunately, buying in these cases doesn’t give you a chance to shop around. 

Although there is little underwriting for developer financing beyond a credit and income check, these loans carry very high interest rates, sometimes exceeding 20%. Most loans last between seven and 10 years, making monthly payments seem affordable, but the total finance charges over the full term are substantial.

When it makes sense: Developer financing almost never makes sense. However, it can be useful if you had already planned to buy the timeshare anyway or plan to refinance soon.  

Personal Loans for Timeshares

Best for: Budget-conscious buyers looking for a shorter payoff period

Personal loans can be used for nearly anything, including timeshares. These unsecured loans are generally better than developer financing options. Approval depends on your credit, income and debt-to-income ratio.

Using a personal loan to buy a timeshare allows you to shop around for the best rate, which can range from 8% to 36%, depending on your credit score. 

When it makes sense: You can comfortably manage a short-to-medium payoff timeline and understand that the timeshare has poor resale value, but you still want it.

Home Equity and HELOCs

Best for: High equity, rate-sensitive borrowers

If you currently own your home, another financing option to consider when purchasing a timeshare would be a home equity loan or HELOC. These loans are secured with your home, making interest rates much lower than with developer or personal loans.

However, lower rates also come with a major drawback. If you find yourself in a position where you can’t make payments on your loan, you could risk foreclosure on your home. Additionally, many HELOCs have variable interest rates, meaning if rates go up, so will your monthly loan payments.

When it makes sense: Using a personal loan vs. a home equity loan or HELOC makes the most sense when you can get a significantly lower interest rate, and your loan is a small part of your home's equity.

Non-Loan Alternatives

Best for: Anyone with available cash

If you have the available cash, this is always the best way to buy a timeshare. You’ll avoid financing charges and won’t be risking your primary residence for a timeshare that offers no appreciation.

Another strategy is to find a used timeshare that you can purchase at a fraction of the cost. This could give you a better opportunity to pay with cash or arrange payments over a short period.

Pros and Cons of Timeshare Loans

Before using a timeshare loan, you should consider all the pros and cons.

Pros

• Allows you to spread out a large upfront cost: Using a timeshare loan allows you to buy the timeshare without needing a lot of cash.

• Immediate financing: Unlike purchasing a home, which has a long underwriting period, you can buy a timeshare using a timeshare loan and have financing arranged the same day.

• Fixed monthly payments: Timeshare loans typically have fixed monthly payments, helping you budget for the expense each month.

• Easier approval compared to mortgages: Timeshare loans have easier financing requirements, making them simpler to obtain than a mortgage. 

Cons

• High interest rates: Timeshare loans often come with high interest rates, which means you could end up paying thousands of dollars in financing for a depreciating asset. 

• Fewer legal protections: Unlike mortgages, timeshare loans lack federal legal protections.

• Difficult resale market: If you decide you no longer want or can’t afford the timeshare anymore, they can be hard to sell.

• Credit impact if you default: Like any other loan, defaulting can significantly affect your credit.

How To Decide if a Timeshare Loan Makes Sense

If you're thinking about a timeshare loan, take a step back to evaluate the whole situation to make sure it’s the right choice for you. The checklist below will help guide your decision.

• Compare personal loan rates. Timeshare loans usually carry very high interest rates. Be sure to compare at least two or three personal loan options to determine if they are a better choice.

• Will the timeshare be used? Timeshares don't increase in value like traditional real estate. When you buy a timeshare, it's for vacation purposes, not as an investment. Make sure you plan to use it often, or you'll be wasting money every year.

• Are extra fees included? Timeshares often come with additional fees like maintenance and association dues. These will still need to be paid even after your loan is paid off.

• Is the total cost manageable? Once you understand the costs of your loan payment and any other expenses related to your timeshare, make sure it comfortably fits within your budget.

• Resale can be difficult and even costly. A timeshare can be difficult to sell if you no longer want to own it. Because of that, you should make sure you want to own it for the long term.

When making your decision, consider this approach: if interest rates are competitive and you plan to use the timeshare often, then a timeshare loan might be worth considering. However, if you can find better interest rates elsewhere and need more flexibility, then exploring other financing options could be more beneficial. 

Timeshare Loan: A Quick Recap

Owning a timeshare might sound like the perfect option for your family's yearly vacations. However, before you jump at the hard sales pitch you’ll receive at the timeshare presentation, consider the facts.

• Timeshare loans can provide quick financing, but they typically have high interest rates. 

• Timeshares rarely hold their value, and most depreciate quickly. This means that if you need to sell, you might owe more on your loan than the timeshare is worth.

• If you want to sell your timeshare in the future, it might be challenging due to the limited timeshare market.

FAQs

Can you refinance a timeshare loan?

Yes, you can refinance a timeshare loan, but you probably won’t be able to use a traditional lender. Instead, you’ll need to pay off the loan with a personal loan, home equity loan or HELOC.

What is the recission period?

A timeshare loan's recission period is a "cooling off" period of about three to 10 days, which allows you to cancel the contract to purchase, without penalty and a full refund. The exact range depends on your state.

What happens if you default?

Some timeshares are secured by the timeshare itself. In this case, the developer will proceed with foreclosure to reclaim the timeshare. Defaulting will also harm your credit score and may result in legal action.

Are interest payments tax-deductible?

In most cases, the interest paid on a timeshare loan isn't tax-deductible. 

Can you sell a timeshare with a loan attached?

Yes, you can sell a timeshare with a loan attached, but it's usually more challenging. This is because timeshares depreciate rapidly and may be worth less than your loan balance, which will need to be paid off before closing.

Are timeshare loans secured or unsecured?

Most timeshare loans are unsecured, which is why they have higher interest rates. Sometimes timeshare loans are secured by the timeshare itself, though.

Key Terms

• Timeshare loan: A timeshare loan helps you finance a timeshare purchase. It usually has a five- to 10-year term, high APR and generally little resale value.

• Annual percentage rate (APR): APR shows the total yearly cost of borrowing, including interest and certain lender fees, expressed as a percentage.

• Home equity line of credit (HELOC): A HELOC lets you borrow against your home equity as needed. Your home secures the credit line.

• Unsecured loan: An unsecured loan doesn't require collateral. Approval is based mostly on your credit and ability to repay.

• Rescission period: The rescission period is a short window after signing when you can cancel a timeshare contract without penalty. Rules vary by state.

Sources:

• Consumer Financial Protection Bureau: What is the difference between a loan interest rate and the APR?

• Consumer Financial Protection Bureau: What is a home equity line of credit (HELOC)?

• Consumer Financial Protection Bureau: Differentiating between secured and unsecured loans

• Federal Trade Commission: Timeshares, Vacation Clubs, and Related Scams

• Latern by SoFi. Timeshare Loans: Can You Finance Timeshare Purchases?

• SoFi. How Timeshare Financing Works for Vacation Property

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