To finance, or not to finance…

Conventional wisdom among some in the Disney Vacation Club community is that you should not buy DVC if you have to finance it. It’s cash or nothing. Arguments like this drive me crazy. It’s like telling a parent there’s only one way to raise your child. If you’re going to struggle to make the payments, if you’re going to have to give up necessities in order to do it, then I would agree – don’t finance this. But for some, financing is a good option, especially if you’re in a position to pay it off in a short(er) amount of time. Interest rates accrued over 10 years eliminate any financial benefit of buying DVC in most cases, but that’s from my standpoint and someone else may feel differently.

Back in 1996, my partner (at the time) decided to purchase 150 points at Old Key West (I was not listed on the contract as we didn’t think it was important). We were both working jobs in middle management at our respective companies, not rolling in money by any means, but we really wanted DVC as we vacationed at WDW twice a year and it made sense for us. The payments were not a hardship for us and looking back I don’t think either of us has any regrets.

Obviously, if you have the means to purchase a contract for cash, that would be ideal. Not having to make interest payments only increases the lifetime value of your points.

The argument is often made ‘don’t finance luxury items’. I understand that and generally, I agree with it. But where DVC is concerned, I feel that it’s not quite so black and white as some would make it. There are frivolous luxury items, then there are luxury items that really do add to the quality of life. An expensive new ring is frivolous, but an engagement ring is something different. Is it required in the strictest sense of the word? No – it isn’t. However, it represents something more than just the item itself and there are many, many people who will finance a purchase like that because of the intangible value it adds.

For Disney fans – for those of us to whom Disney is more than just a vacation destination, I would argue that DVC falls into the latter category. Is it required? No – it isn’t. Does it add to the quality of an emotionally important experience? I think most DVC members would agree that it does.

There are many options with financing. Disney, for example, does not report the loan to credit agencies (they act as the bank when issuing a loan). They will do a hard pull on your credit, but the loan itself is not shown on your credit report. There are companies like Monera Financial who don’t pull a credit report at all – everyone is guaranteed financing. Others like LightStream (part of SunTrust bank) offer very competitive rates for well-qualified buyers.

The bottom line is this – it’s up to each individual to determine what is right for them. If someone makes a financially irresponsible decision in purchasing DVC, they alone will endure the consequences of it. I encourage people in the strongest sense of the word to do their homework if they plan to finance. Look at it from all angles while doing your best to remove pixie-dust from the equation. Pixie dust is only allowed in if the monthly payments of financing a DVC contract do not present a hardship. If you have to give up other things, if you have scale back on your lifestyle or any meaningful necessities, then perhaps it’s not the right choice.

7 thoughts on “To finance, or not to finance…

  • July 30, 2019 at 9:34 am
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    If you’ll need financing, avoid doing it through Disney. It was an easy process, but the interest rate was above 10% for the 10 years, which is insane. If you have equity in your home, use a home equity loan or line of credit. Making the payments during the life of the loan will offset any credit hits that come from taking on the added debt.

  • July 30, 2019 at 10:07 am
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    I think you are spot on Pete. The wife and I believe there are things as good and bad debt. Things that can give you long time joy and happiness are what we consider good debt. A home and vacations where family and friends can gather and spend quality time together fall into this category. Also, DVC has appreciated. I bought BCV at $90. If I sold today, the selling price would cover all cost of purchase plus the interest and some of the annual dues for the past 17 years. My home’s value has not appreciated 67% in 17 years, and I have spent way more in “annual dues” on it!

  • July 30, 2019 at 10:48 am
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    I kind of agree. The reason most suggest that others should not finance DVC is because they are making several assumptions that may or may not be correct.

    1) Reason for financing is simply because they cannot afford the purchase. In personal finance, the suggestion is usually to save for a luxury item first before purchasing. If saving up for the purchase is difficult, this is a good indicator that you can’t afford the purchase.

    The big caveat here is that DVC is different than buying a new boat, or a fancy car. These are pure luxury items and do no provide any sort of financial benefit. While DVC is a “luxury” item in the strictest sense, it is also a financial product. If your calculations show (based on your own set of personal assumptions) that DVC will save you money vs money you will spend out of pocket anyways, there can be a financial case to be made to finance so that you can save that money earlier. Consider the interest an expense against your savings. Of course, at the end of the day, if you can’t afford it, the cheapest option is to not vacation at Disney World all together.

    2) A car salesman first question is always “what kind of monthly payment are you looking for”. The reason they do this is because they can manipulate the variables to fit into your budget (by extending the term of the loan). On the surface, it makes the product seem cheaper than it actually is.

    The advice of not financing is under the assumption that they purchaser has determined they can afford the “payment” but not necessarily the product itself.

    3) Another assumption is that they will finance direct through Disney, credit card, or another high interest rate lender. The equation changes if your financing on a Home Equity Line of Credit, or have access to other low interest loans.

    Everyone’s situation is different. A lot of advice you see here, or elsewhere is very generic and is based on many assumptions that may not fit into your particular case. Just like any major financial decision, it’s important to understand all of the implications and how they will affect you both positively and negatively.

  • July 30, 2019 at 10:49 am
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    Excellent point Pete and logically it makes total sense. When I comes to DVC though, I throw logic out the window and go with the feels. I HAD to have DVC and financing was the only way to do it. Yeah, we had to cut back on eating out as often to soften the blow a little but that isn’t necessarily a bad thing. 🙂 Regardless, I do not regret a thing and would do it all again, we LOVE DVC.

  • July 30, 2019 at 11:27 am
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    We used our HELOC to pay for our initial DVC contract, so it was “financed” but we paid a much lower interest rate (3%) which allowed us to pay it off faster and we could write the interest paid off on our taxes.

  • July 30, 2019 at 6:17 pm
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    So, I think financing is not necessarily a bad choice, as long as you fully understand what the cost effect is going to be. Paying 13% more for 10 years is going to nearly double your buy-in cost.

    But here’s an example when financing versus “saving up the money” works out. We bought our first contract in 2014 and we had enough for about $2000 down, but took out a HELOC to cover the rest – the HELOC was at 3.99% but I was planning to pay it off in 5 years. However, we bought the points at $74 / pt at AKV. I’ve paid off MOST of the loan since then – still owe a little under $3000, but realize that the point costs in the last 5 years went from $74 a point to $110 a point, a nearly 50% increase. While I’ve paid about 10-15% “extra” from these points in interest over the last 5 years, I certainly SAVED a LOT of money versus what it would have cost me to save up enough money to buy it, not to mention the 5-years of vacations I’ve gotten out of it.

  • August 1, 2019 at 11:13 pm
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    HELOC sounds good, but here’s the bottom line, by doing a HELOC you are putting your home at risk (by borrowing more on it) for a luxury item. So while it all sounds good with low interest and write off on taxes that’s only if everything goes right, which it almost never does. If it doesn’t it could cost you your house.

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