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Pay off a Timeshare LoanIf you still have an outstanding loan on your timeshare, it will be nearly impossible to sell it. In order to get yourself in a position where you can even try to sell your timeshare, you will need to pay off your timeshare loan.
There are quite a few people that assume that even though they still have a loan on their timeshare, they will be able to easily give it away by letting someone simply take over the loan payments on the timeshare. Their reasoning is that they have already made a lot of payments toward the loan so it would appear to be a great deal from their perspective for the new owner.
The problem is that the price they paid for the timeshare is far more than the true worth of the timeshare. The result is that it will be impossible to find anyone willing to take over the loan on the timeshare. If you were hoping to have someone take over your current timeshare loan, it's time to forget it and move onto other options.
It's important to understand what type of loan you took out to get the timeshare in the first place. If it was a mortgage type loan, then you need to pay it off before you can attempt to sell your timeshare. If, on the other hand, you took out a personal consumer loan for the timeshare money (a distinct possibility) and the loan was given without the timeshare being used as collateral, then there is a good possibility that you can sell your timeshare even if you still have a loan. Since the loan isn't tied to the timeshare, you can sell the timeshare just as though you didn't owe any money on it. This, however, doesn't make the actual loan go away and you will still need to repay it even after you sell the timeshare.
If you didn't take out a personal consumer loan, there are a few more ways that you may be able to pay off the timeshare loan:
Home Equity: If you have built up equity in your primary residence, taking out a second mortgage or a line of credit can be used to pay off the timeshare. While this is probably the easiest way to pay it off, it is also the riskiest. By putting that debt into your primary house, you put at risk the place where you live if you are not able to pay your mortgage payments in the future. While defaulting on your timeshare will ruin your credit, it won't mean that you don't have a place to live which would be the result if you default on your mortgage. Only consider this option if you are 110% sure that you have the means to pay off the additional payments toward your mortgage even if economic times get worse.
Get a bank loan: If you didn't take out a personal consumer loan to pay for the timeshare originally, then you might want to take one out on the remaining balance to pay off the timeshare loan. The issue here is that the bank needs to believe that you have the means to pay off the loan, so it will be much easier to secure if your credit is healthy and you can show that you are making enough money to pay it off. You may also need to put something else besides the timeshare up as collateral. If you have poor credit or don't have the means to pay off the loan with your current employment, then it will be very difficult to secure a loan like this.
Person to person lending: There are websites that now allow you to take out loans from other people instead of from banks. Two examples are Lending Club and Pertuity Direct. Using peer to peer lending is the same as taking a loan from a bank, but since the loan is coming directly from individuals, it can be easier to get a loan and loan rates are sometimes lower than those you could get from a bank. By getting a loan through peer to peer lending, you can pay off your timeshare loan freeing it up for sale.
Savings account: If you have money sitting in your savings account, it might be worthwhile using this to pay off your timeshare loan. While nobody wants to use their savings to pay off something like a timeshare, it can make financial sense to do so. Timeshare loans typically carry high interest rates and savings accounts usually earn very little interest. If you're paying 15% on your timeshare loan, using you savings is an instant 15% risk free return, much higher than what you are earning in your savings account. The higher the interest rate on your timeshare loan, the more attractive using your savings becomes.
Life insurance: If you have a life insurance policy that has a cash value, this may be another option to paying off your timeshare loan by borrowing against the policy. While you are essentially borrowing your own money in this instance, the interest rate is typically much lower than that on a timeshare loan and it frees you up to be able to sell the timeshare. You may also have more time to pay off the loan. The important point to remember is that you need to repay this as quickly as possible because if you happen to die before the loan is repaid, the outstanding balance plus interest will be deducted from the face value of the insurance policy when paid out which could leave your
loved ones without enough money.
Credit card: If you have credit cards where the balance is well below your limit, you may want to consider transferring the debt from the timeshare loan to the credit cards. This won't help you with the interest rate that you're paying in most cases and may very well be a bit higher than on the timeshare loan, but it will pay off the timeshare loan so that you are in a position where you can sell it. Once sold, you won't have the timeshare maintenance and special assessment fees and you can use the money that would have gone to them to pay off your credit card balance quicker which should still put you financially ahead in the
long run.
Friend or relative: While there is a lot of risk when borrowing money from friends or relatives (the main one being ruining the relationship if the money is not paid back), it is an option that you may want to consider. If you can get the money this way, you are likely to get a much better interest rate than you could from any other lending institution. If you do go this route, be sure draw up a written repayment contract with a clearly defined interest rate and repayment schedule. Signing such an agreement helps to make sure that there are no misunderstandings about the repayments and should make the person lending you the money more at ease.
Retirement Plan: Another possible source for paying off your timeshare loan is your 401(k) or other qualified retirement plan at work. It is possible to borrow the smaller of $50,000 or 50% of the accounts value. The interest rate is usually just above the prime interest rate
which is better than most interest rates on timeshare loans, so you put yourself in a position to be able to sell your timeshare and pay less on the loan. Even better, you end up paying yourself that interest since all the interest goes directly back into your retirement account, not some other lender.
All is not perfect with this option and there are a few issues that you need to consider. You end up paying back the loan with after-tax dollars, but all the interest will be taxed again when you ultimately withdraw the money at retirement. There is also a 5 year limit on the
repayment of these type of loans. If you end up leaving your employer or getting laid off, any outstanding balance become due immediately and if not paid off, is counted as a distribution incurring taxes and a 10% early withdrawal penalty.
If after going through all of the above options and finding that none works in your circumstances, you need to make a decision. If you think that you will be able to pay the timeshare loan off over time, then consider trying to rent your week each year to minimize your losses until you can get the timeshare loan debt paid down. While you aren't likely to be able to recover all of your costs, you should be able to recover some.
If you feel that there is no way that you will be able to pay off the timeshare loan due to your current financial situation, then you should contact the institution that is holding your timeshare loan and explain the situation. Understand before calling exactly what you need to make the situation work where you will be able to pay off the remaining balance of the timeshare loan. This could be a lower interest rate, a lower payment schedule or a combination of both. Let them know that if you are unable to renegotiate the terms on your timeshare loan, your only recourse will be to default on the loan. They are fully aware that if you default, they are likely to lose all their money since the timeshare doesn't have much value. They may be willing change the loan agreement in order to protect themselves against a total loss.Previous: Sell Timeshare - Reseller | Next: Timeshare Dump
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