Part of the American dream, is the goal to buy a residence that you can call your own. Increasingly for first time home buyers, the credit crunch has made the dream of home ownership harder to realize, with lenders increasing the level of scrutiny and requirements for financing and approval. It’s not your imagination; it is getting harder to purchase a home in the United States.
How does this impact someone who owns a timeshare? In this article, we’ll talk about how many young couples found that a negative experience with timeshare ownership had reverberating financial consequences. We will explain three factors that can make buying a home more difficult for timeshare owners, and how timeshare cancellation can help.
1. Timeshare Purchase Loans Are Unsecured Debt at High Interest Rates
When you buy a car and finance it, the loan is categorized as a secured debt, as there is an asset (your vehicle) that is worth more than the total value of the loan. The asset ratio is needed to ensure that the financer has the ability to recoup the value of the loan, should the owner default on the terms of borrowing.
Conversely, credit cards are viewed as unsecured debt, because they are not linked to a hard asset which can be repossessed by the lender, to retrieve value for the loan amount. Many timeshare owners think that their partial ‘ownership’ is an asset, and that the loan amount they take to purchase a new timeshare can be classified as a secured loan. But banks and private lenders do not share that definition for a timeshare.
The only way a consumer can get a secured loan to purchase a timeshare (sizeable deposits are required upon enforcing the membership contract), is to place another object of equal or greater value against the loan as collateral. For instance, a lien against a vehicle can provide collateral to reduce interest rates for a timeshare purchase, but typically, purchase loans are arranged as unsecured, at a high interest rate and short repayment term. This makes acquiring additional financing down the road (for instance, to purchase a home) more difficult, as it impacts debt vs. asset ratio for the consumer.
A high interest timeshare purchase loan is the first step that buyers make, on a path that leads to more financial burden than they anticipate, at the time of purchase. For consumers who purchase additional weeks or membership points, the finance problem is compounded by more than one validated timeshare contract.
2. Timeshare Membership Fees Are Financial Obligations
Aside from personal credit, one of the most important factors that mortgage lenders look at, is the monthly financial obligations that consumers have. The debt versus asset ratio is used to determine how much cash flow a consumer has, after he or she pays the normal expenses of living, including rent, vehicles, credit card debt, student loans, utilities, insurance and other variables.
What you are spending on your timeshare membership and maintenance fees, accounts for a portion of your financial obligation every month. When a consumer borrows money for the initial down payment on a new timeshare, the monthly loan repayment is a separate financial issue, in addition to membership and maintenance fees. One of the most precarious things about timeshare ownership, is the fact that maintenance fees can rise without warning, and without limit, depending on variable factors including natural disasters, such as tropical storms, mudslides or flooding. Lenders look at timeshare expenses with a great deal of scrutiny, because they know that a timeshare may not be a fixed monthly payment.
3. Late Payments and Disputes Can Damage Your Credit
Since 2004, we’ve been helping families by providing counseling and assistance regarding timeshare cancellation. In our experience, timeshare owners are disappointed with the aggressive and non-compassionate stance that resorts and vacation membership companies take, when an owner wants or needs to resign their owner’s contract.
While we are all aware that timeshare contracts are as legally binding as a mortgage, there are legitimate reasons why a consumer may wish to cancel their contract, and many times, it is because of adversity. Timeshare owners may become physically unable to use their resort time, or they may face financial hardship due to loss of employment, or illness. Very few timeshare organizations however, are open to assuming ownership of their inventory; they prefer instead to take legal action to force the consumer to pay out the remnant of the contract, including late fees and penalties for non-payment.
When a consumer is locked in a battle with a timeshare, without any kind of legal representation, the dispute can take more than a year to resolve; in some cases, the situation can remain unresolved for many years, during which time the fees continue to add up, as well as disparaging reports to the American credit bureaus, damaging valuable personal credit.
In the worst scenarios of dispute between timeshare resorts and an owner, bankruptcy can seem like the only answer to end the accumulation of charges and expenses, related to the timeshare contract. Owning a timeshare (or more than one), can reduce your ability to acquire financing, and defaulting on a timeshare can cause damage to your personal credit that can take years to repair, during which time, mortgage lenders will be unlikely to issue you a home loan.
If you are stuck in a high-cost timeshare contract, and you are starting to improve your credit and your financial profile to buy a home, we recommend considering our attorney lead timeshare cancellation counseling. Aconsumercredit™, has an excellent reputation within the industry as one of the leading experts in timeshare cancellation.
In twelve months or less, we can help you cancel your timeshare for good. Don’t let owning a timeshare you “never use” delay your financial plans, or dream of owning your first home. Call us at 1-800-587-EXIT to discuss your case, and cancellation options.