Buying a timeshare is common in the United States. Statistics show that 1 out of every 12 Americans owned one in 2014. If you have ever been to a popular resort destination, chances are you are familiar with the sales presentations. You receive an offer for a free nights stay, admission to the amusement park of your choice, or another enticement. The only catch? You have to sit through a 2 hour sales presentation in order to receive your “gift”.
I know so many people who took a vacation with zero intention of buying a timeshare. However, after an enticing offer and a hardcore sales pitch, they came home with an expensive new vacation plan. Timeshare sales are big business. They are huge profit centers for hotel companies. Like many other products, they are not always “evil”. However, most people regret the decision to buy one. The sales tactics by some organizations are high pressure. They have little regard for the financial situation of the buyer. Many consumers receive promises that simply are not true.
The Ugly Side of Buying a Timeshare
The statistics about buying a timeshare are very sobering. Research by Dr. Amy Gregory of the University of Central Florida sheds light on the significant drawbacks timeshares present. According to her research, the average cancellation rate is 15 percent. That is almost identical to the percentage of people who buy a timeshare after a sales presentation. 85 percent of all buyers regret the decision. The reasons include finances, fear, confusion, and intimidation. 41 percent of people never thought they would regret the decision, but ended up doing so. 30 percent were neutral prior to the purchase, but came to regret the decision.
The following statistic was most troubling to me. 95 percent of all buyers go back to the sales team for more information AFTER the sale. The buyers request clarification on maintenance fees, resale options, and pricing. It’s sad to see so many people make a massive financial commitment without fully understanding the details before they sign the contract. With that much uncertainty, you can see why the overwhelming majority of people come to regret the decision.
The Cost of Buying a Timeshare
Buying a timeshare is expensive. The average price of a new timeshare purchase is $20,040. That is a significant financial commitment. Unfortunately, most people who buy timeshares do not have that much money on hand. Therefore, they end up financing the purchase on credit. The American Resort Development Association reports that the average interest rate on a timeshare loan is 14 percent over 10 years. Some rates reach as high as 20 percent!
The sad thing to me is that many people compound the mistake with further financial decisions. Some finance their purchase through the following: taking out a home equity loan, putting the purchase on a credit card, or borrowing from a 401K. This creates additional financial hardship and makes a poor decision even more burdensome. It also creates significant risk by bringing their house or retirement funds into play.
Is a Buying a Timeshare Ever an Investment?
One word that makes me cringe in reference to buying a timeshare is “investment”. Many sales people in the industry are trained to present it as a solid investment. I will always stress that anything you view as an investment should come with the intention of making you money. Timeshares are not an investment, they are purely for consumption. If you use it annually and it brings you a lifetime of enjoyment, it may be money well-spent. However, the facts show that most people lose their shirt with timeshares. One exit specialist estimates that 8 out of 10 people he works with have never even used their timeshare once! They are fortunate to receive pennies on the dollar in order to escape the contract. Many people pay a huge fee to get out of the agreement.
Understand the Sales Tactics and Be Prepared
If you decide to attend a presentation solely to receive a freebie, you need to be ready. Timeshare sales involves a lot of emotion that you may not be aware of. First off, most human beings like to reciprocate when they receive something. After receiving free gifts like a hotel stay, show tickets, or park passes, chances are you are having a nice time. Most sales people are very polite, and they will emphasize the fact that you are enjoying yourself. Imagine getting to do it over and over again, for a great price. Buying a timeshare will allow you to do just that! The emotions are powerful when you are sitting at that table.
Buying a timeshare is an impulse buy for the vast majority of buyers. Like I mentioned, I know a lot of people who had no intention of buying one when they went on vacation. Impulse buys are usually the worst financial decisions we make. In this day and age, we tend to look for pleasure based on our emotional state. Being in a fantastic mood about vacation can be dangerous to your money! If you are not laser-focused on a higher purpose for your money, it’s easy to spend big on things that bring us short-term emotional gain.
Closing the Sale at Any Cost
I am not trying to be critical of individual timeshare sales people. They are trying to make a living, and they are trained by the company on the tactics to use. I see this all the time in the financial industry. Sadly. for many organizations, it’s all about closing the sale. There is little consideration toward understanding if it is actually right for the buyer. It reminds me of car sales. If I walk into a Ferrari dealership, the sales person probably doesn’t care if I can afford the car or not. Their focus is to close as many deals as possible. If I buy a car I cannot afford, I definitely have to take responsibility for my decision.
Check the Timeshare Resale Market
The timeshare resale market is big business. If you want a good example of the drawbacks to buying a timeshare, look no further than the listings for people trying to escape their contracts. The resale market is full of timeshares going for a fraction of the price the owners paid initially. Some companies even specialize in negotiating a settlement for owners to walk away from their timeshare. There are a large group of owners who are willing to pay to exit their contract.
If you are ever at a sales presentation for a new timeshare, remember the resale market. You can probably buy a timeshare for pennies on the dollar compared to what a new one would cost you. The other thing you have to be aware of is special assessments and other fees. Even if you get the timeshare for cheap, you have to understand the contract agreement. What if you buy a timeshare and the resort hits owners with an assessment fee for renovations? This happens frequently. That may cost you thousands of dollars in unplanned expenses.
Always Be Deliberate With Your Money
Timeshares are a slippery slope. Like I mentioned, I know some people who have them and are happy with their timeshare. However, those people are in the minority. For the majority of people I know, their timeshare is a financial burden. Not only that, they also discovered that the timeshare isn’t everything they expected it to be.
The majority of bad financial decisions are usually made in the spur of the moment. When you make a decision based on emotion, it tends to be one that is not in your best interest. When you are on vacation, you are usually in a great mood. If you love the area you are vacationing in, temptation may rear its ugly head. We’re all human, so of course we cannot eliminate emotion. However, if you maintain your discipline and make deliberate financial decisions, you are setting yourself up for success.
Timeshares and Your Financial Goals
Timeshares can be a rip off, but you may have the opportunity to get one at a fair price. Even then, how does it fit into your financial big picture? Would it impact your other more important financial goals? Could a timeshare become a burden to you financially? Would you actually use it, or would you get bored with it? Would you be better off just saving for vacations annually? Those are important questions.
A timeshare is a major commitment. If it does not clearly fit into your financial goals, it would be dangerous to purchase one. With so many people feeling buyers remorse, its important to be on guard. You deserve regular vacations and the opportunity to relax. However, the excitement and emotional high of a vacation will fade fast if you buy something that becomes a burden. For any big decision, do the math and make sure it clearly meets your needs. If it does not, use the money elsewhere.