If 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 resort unit, you will need to pay off any loan that is still outstanding on it.
There are quite a few people who assume that even though they still have a loan on their property, they will be able to easily give it away by letting someone take over the monthly payments. 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, as whoever tool it over would be paying far less than they did.
The problem is that the price most people paid is far more than the true worth of the the resort property. The result is that it will be impossible to find anyone willing to simply take over the loan since they can find one on the secondary market for far cheaper with no outstanding debt. If you were hoping to have someone take over your current loan, it’s time to realize that this is never going to happen, 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 unit. If, on the other hand, you took out a personal consumer loan (a distinct possibility), the loan was given without the resort unit being used as collateral. If this is the case, then there’s a good possibility that you can sell your unit even if you still have a loan. Since the loan isn’t tied to the property, you can sell it 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 the full debt even after you no longer own the unit.
If you didn’t take out a personal consumer loan, there are a few ways that you may want to consider to erase the debt and allow you to begin trying to sell your unit:
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 loan. 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 resort property 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 originally take out a personal consumer loan, then you might want to take one out on the remaining balance. 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 one 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 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 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 interest 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 loan freeing it up for sale.
If you have money sitting in your savings account, it might be worthwhile using this to pay off your loan. While nobody wants to use their savings to pay off something like this, 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 resort unit 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 loan, the more attractive using your savings becomes.
If you have a life insurance policy that has a cash value, this may be another option to paying off your loan by borrowing against the policy. While you are essentially borrowing your own money in this instance, the interest rate is typically much lower and it frees you up to be able to sell. 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.
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 your current loan, but it will pay off the loan so that you are in a position where you can sell it. Once sold, you won’t have the maintenance and special assessment fees to pay, and you can use the money that would have gone to them to help 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.
Another possible source for paying off your 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 resort unit 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 loan off over time, then consider trying to rent your week each year to minimize your losses until you can get the 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 loan due to your current financial situation, then you should contact the institution that is holding your loan and explain the situation. Understand before calling exactly what financial help you need to make the situation work where you will be able to pay off the remaining balance. This could be a lower interest rate, a longer payment schedule or a combination of both. Let them know that if you are unable to renegotiate the terms on your loan, your only recourse will be to default on it. They are fully aware that if you default, they are likely to lose all their money since resorts units rarely have much value. They may be willing change the loan agreement in order to protect themselves against such a total loss.