Financing vs. Purchasing Upfront

[atjimfromdisney]

Financing vs. Purchasing Upfront

Hello! I’m currently progressing towards making a decision on DVC membership! (YAY) (“when” not “if”)

As an MBA, I know that without including any variables, financing with the added interest will always cost more vs purchasing something outright or upfront. When looking at purchasing DVC points, which bring a substantial initial upfront cost, do you think financing with the benefit/value of receiving the points immediately outweigh the benefit/value of saving a few years to purchase the points outright?

Some variables you might consider in your thoughts ie. Will the resort “sell out” while saving to purchase outright (direct purchase)?
Can you “make back” your interest by renting unused points?

Interested to hear everyone’s thoughts on how they might handle this or how you went through your purchase of DVC points!

 

[DisneyOutsider]

Financing vs. Purchasing Upfront

Hello! I’m currently progressing towards making a decision on DVC membership! (YAY) (“when” not “if”)

As an MBA, I know that without including any variables, financing with the added interest will always cost more vs purchasing something outright or upfront. When looking at purchasing DVC points, which bring a substantial initial upfront cost, do you think financing with the benefit/value of receiving the points immediately outweigh the benefit/value of saving a few years to purchase the points outright?

Some variables you might consider in your thoughts ie. Will the resort “sell out” while saving to purchase outright (direct purchase)?
Can you “make back” your interest by renting unused points?

Interested to hear everyone’s thoughts on how they might handle this or how you went through your purchase of DVC points!

I have a very hard-line stance that if you have to finance your DVC purchase.. don't do it. The numbers just don't make sense. From a purely financial standpoint, wait a few years until you've saved up enough to purchase, and if need be rent DVC points for your stays in the meantime (or sacrifice your trip for 1-2 years until you have enough). You will make out far better this way. That's my advice.

I also wouldn't worry about a resort "sell out". The extra perks you get buying direct are just not worth the premium they charge (not to mention they're subject to change at any moment) and by the time they sell out there should be sufficient supply on the secondary market.

To your point about renting out points... why buy in the first place if you need to flip them just to make the numbers work?

If you have specific numbers you're dealing with I could give you some more detailed analysis, but I'm assuming as an MBA you're well-equipped to do so yourself.

 

[correcaminos]

I am also in the "if you have to finance to buy, then don't" camp. I have never financed any of our 4 purchase and I wouldn't no matter how tempting it is. The renting scenario doesn't matter to me because you can rent to make your money back with a purchase no matter if you finance or not. You're just getting less with financing.

I too wouldn't worry about resorts selling out. Not hard to get on a wait list. I also wouldn't discount buying resale. I have done both and if doing a larger purchase in particular, I wouldn't consider direct much at all. The perks come and go so never count on having them.

There might be an emotional 'benefit' to having the points sooner than later. As an MBA I'm sure you are more than capable of running numbers. You should do what you want to do with your money but I personally never finance anything outside of my house unless I can reliably make that money more elsewhere (like car interest of 0% or even .9% often can be easily beat).

 

[nickys]

So I’ll be brave and give a different perspective. First off I should say, note I didn’t say another point of view or opinion..... this is not advocating doing what we did, because our situation is probably different to 95% of DVC members.

But we did finance. And it’s worked out for us.

We bought in the downturn (2010), and financed through Disney. We knew we could afford the repayments plus 25%, but didn’t have the savings to buy outright. We are from the U.K. so knew we would come every 3 years. We paid off the loan in 7 years.

If we had waited and saved, by the time we had saved enough to buy the same amount of points that they cost resale at that point, the prices had risen so much we couldn’t have bought. Not sure if that makes sense. When we bought, the points we bought would have cost x resale. If we had waited until we had saved x, the market had recovered and those points now cost x ++. Buying fewer points wasn’t really an option. The cost of the flights from the U.K. means it really isn’t viable to come for less than 2 weeks, so buying fewer points wouldn’t have been worthwhile.

Financing let us buy the points we needed and at a cost we could afford. Obviously if we had had the savings to buy outright we would have paid less. But sometimes you need to make a choice, and we were comfortable making the choice we did. We still are.

If we sold now, we would cover what we paid, plus the finance cost, plus the mf fees. It’s a moot point because we aren’t selling now. But that shows how much the prices have increased in 8.5 years.

As for break even, we knew we would break even somewhere between the 4th and 5th trip. At that point we should still have 2-3 more trips before the transatlantic flights become less manageable.

Of course, we can’t see what will actually happen. Maybe we’ll not reach that 5th trip. In which case, we will still be able to sell though. And we will have the memories of some amazing family holidays. Some things can’t be valued just in monetary terms. WDW is our happy place. Staying onsite let’s DH relax and kick back in a way he has never been able to do at home. And that means the rest of us can relax too.

Any regrets?

One. We should have split the contract into two. We will have to have that conversation with our sons at some point. One of them may want to take it on, if not we’ll sell.

 

[Nottamus]

I didn't see anywhere in post, but if you are talking DIRECT points, maybe looking at the RESALE market would be easier obtainable.

I see you are already AP holder, so you get perks. Discounts. The DVC, if just used for bookings at resorts, can be resale to save $$$.

 

[atjimfromdisney]

I am also in the "if you have to finance to buy, then don't" camp. I have never financed any of our 4 purchase and I wouldn't no matter how tempting it is. The renting scenario doesn't matter to me because you can rent to make your money back with a purchase no matter if you finance or not. You're just getting less with financing.

I too wouldn't worry about resorts selling out. Not hard to get on a wait list. I also wouldn't discount buying resale. I have done both and if doing a larger purchase in particular, I wouldn't consider direct much at all. The perks come and go so never count on having them.

There might be an emotional 'benefit' to having the points sooner than later. As an MBA I'm sure you are more than capable of running numbers. You should do what you want to do with your money but I personally never finance anything outside of my house unless I can reliably make that money more elsewhere (like car interest of 0% or even .9% often can be easily beat).

As an MBA I sometimes get *too into* the numbers behind every decision. I was interested to see if any thought an emotional benefit would outweigh 10% interest haha. I completely agree/and we will be making an outright purchase when we do go through with it, I can't bring myself to finance, but I always love a devils advocate in the decision making process!

 

[atjimfromdisney]

So I’ll be brave and give a different perspective. First off I should say, note I didn’t say another point of view or opinion..... this is not advocating doing what we did, because our situation is probably different to 95% of DVC members.

But we did finance. And it’s worked out for us.

We bought in the downturn (2010), and financed through Disney. We knew we could afford the repayments plus 25%, but didn’t have the savings to buy outright. We are from the U.K. so knew we would come every 3 years. We paid off the loan in 7 years.

If we had waited and saved, by the time we had saved enough to buy the same amount of points that they cost resale at that point, the prices had risen so much we couldn’t have bought. Not sure if that makes sense. When we bought, the points we bought would have cost x resale. If we had waited until we had saved x, the market had recovered and those points now cost x ++. Buying fewer points wasn’t really an option. The cost of the flights from the U.K. means it really isn’t viable to come for less than 2 weeks, so buying fewer points wouldn’t have been worthwhile.

Financing let us buy the points we needed and at a cost we could afford. Obviously if we had had the savings to buy outright we would have paid less. But sometimes you need to make a choice, and we were comfortable making the choice we did. We still are.

If we sold now, we would cover what we paid, plus the finance cost, plus the mf fees. It’s a moot point because we aren’t selling now. But that shows how much the prices have increased in 8.5 years.

As for break even, we knew we would break even somewhere between the 4th and 5th trip. At that point we should still have 2-3 more trips before the transatlantic flights become less manageable.

Of course, we can’t see what will actually happen. Maybe we’ll not reach that 5th trip. In which case, we will still be able to sell though. And we will have the memories of some amazing family holidays. Some things can’t be valued just in monetary terms. WDW is our happy place. Staying onsite let’s DH relax and kick back in a way he has never been able to do at home. And that means the rest of us can relax too.

Any regrets?

One. We should have split the contract into two. We will have to have that conversation with our sons at some point. One of them may want to take it on, if not we’ll sell.

I agree, every situation will have different variables that come into play! Obviously it's now a different market than 2010, and your decision looks like it has long run a benefit to your family! Which in the end is the only thing that matters. Thank you for sharing your decision making process!

 

[CaptainAmerica]

As an MBA I sometimes get *too into* the numbers behind every decision. I was interested to see if any thought an emotional benefit would outweigh 10% interest haha. I completely agree/and we will be making an outright purchase when we do go through with it, I can't bring myself to finance, but I always love a devils advocate in the decision making process!

The emotional burden of that much debt far outweighs the emotional benefit of DVC IMO. The numbers make it look bad, the emotion actually makes it worse.

 

[correcaminos]

As an MBA I sometimes get *too into* the numbers behind every decision. I was interested to see if any thought an emotional benefit would outweigh 10% interest haha. I completely agree/and we will be making an outright purchase when we do go through with it, I can't bring myself to finance, but I always love a devils advocate in the decision making process!

I get it and thought that was what you might be wanting to know. I think maybe if you had a very low rate loan it could sway me (talking very low rates) and only if it was short term. Maybe I could do it. Sadly for me the emotional benefit isn't outweighing the "OMG that interest rate!!" that Disney charges.

You do get 6 months interest free if using a Disney credit card though. Just a little FYI.

 

[bigrigross]

I financed my DVC contract. But it was paid off in 8 months. I didnt have the full amount of money to sign with disney and I didnt want to take it out of savings. So i financed it and paid it off. Sure, it was more money out of pocket, but we were looking at a big family trip the next year and buying DVC made it worth it to finance it. True I could have waited until I saved up, but family already had a the dates saved and by then, I would have been only a few months out to make reservations.

Edit: Grammar

 

[DisDadWoz]

When we bought direct in 2008 we had the funds saved up but wanted to be sure the economy was going to be stable so we financed just to see how the first little bit went and to ensure we got in at the point price. We eventually just paid it off once we felt comfortable with everything and here we are still enjoying it 10 years later and will continue to do so. I am in agreement that if you are not stable from a funds perspective you may want to just rent points or look for a much cheaper resale option.

 

[Phonedave]

I financed part of my initial purchase. I forget how much, but it was just a few thousand

I had the money, but it was in accounts and formats that I did not want to extract it from - i.e it was not as liquid as say a money market account.

In the end, it was not much in the way of interest, plus I did get to use my contract sooner.

was it the rock bottom cheapest thing to do? No. But it was not that much more, and it allowed me to keep funds where I wanted them.

-dave

 

[HansGruber]

Financing a luxury item such as DVC is such an incredibly poor financial decision.
Rates start in the double digits. Paying 10%+ for a pre-paid vacation membership doesn't make a heck of a lot of sense, especially when a Disney trip can still be made without the need for DVC ownership.

 

[mouseinthesouth]

I would buy it using a credit card that earns points like a Chase card which earns 3 times the points per $1 spent on travel. Yes DVC is coded as travel. Then if you want switch to a card that offers 0% interest. Chase Ink Business is giving 80K points for spending $5000. Then you the 80K points to buy your flights.

 

[TheGuyThatMakesSwords]

Please - DO NOT FINANCE! Not until you see the INTEREST RATES for DVC Financing .
The kicker with DVC... as you do not actually OWN a defined chunk of land? NO BANK will finance you. They have nothing to work with .

Instead? IF you are going to do this, and GO... Consider what the Banks are paying you, in INTEREST. When we bought in? Banks were giving us under 1%. Today? All paid off, bought our points with CASH, and in six years? Our Nov 2018 trip will NET us over $3000 .

 

[Lensman]

Please - DO NOT FINANCE! Not until you see the INTEREST RATES for DVC Financing .
The kicker with DVC... as you do not actually OWN a defined chunk of land? NO BANK will finance you. They have nothing to work with .

Instead? IF you are going to do this, and GO... Consider what the Banks are paying you, in INTEREST. When we bought in? Banks were giving us under 1%. Today? All paid off, bought our points with CASH, and in six years? Our Nov 2018 trip will NET us over $3000 .

Agree completely with not financing.

@TheGuyThatMakesSwords, how are you going to net $3000 from a trip?

 

[TheGuyThatMakesSwords]

Agree completely with not financing.

@TheGuyThatMakesSwords, how are you going to net $3000 from a trip?

I need to re-define "net", in light of the idea that we are GOING TO GO ANYWAY....

Our room cost is now a REAL $125/night at BRV. At DISCOUNT (and we check em all - both MAIN WL and BRV), REAL nightly room cost + tax is running about $450 to $470 per night. So our REAL ROOM COST, starting from breakeven to contract end, including dues+inflation,
is now running at about 26% of Discounted rental.

We always stay 8 nights, twice per year, AT our Home Resort (WL) So we get:

Discounted RACK: 8*$450*2 = $7200 per year.
DVC, post Breakeven: 8*125*2 = $2000 per year.

On a yearly basis? We are netting a good $5200 . But caveat: THAT'S BECAUSE WE WERE GOING TO GO ANYWAY . And since our buy-in in 2012? We "made" ZERO, vs Discounted RACK. All we did was recover our initial $28K investment . So for 6 years, GOING ANYWAY, we didn't "win" at all.

So here is an interesting hypothetical: What happens if we decide to sell all our points for $1.00, and just quit going? (We are NOT doing this)? We now can not LOOSE any money. KEEP those POINTS? We just get further and further ahead - because we are going to GO ANYWAY .

 

[yaksplat]

Here's some resale number trends to take a look at. I think it depends on the resort that you're looking at. The polynesian is up 15% through august of this year in the resale market. I think it makes sense to finance for a very short term to avoid price spikes like this. A 200 point polynesian contract increased $4200 over half of the year.

Just some food for thought. The cost of waiting can be real thing.

Although, that being said, I just picked up a 200 point contract at PVB for $141. That may be an outlier to the trend, or a sign that the current resale price is too high.

From https://www.dvcresalemarket.com/blog/dvc-resale-average-prices-for-2018-january-august/

edit: updated with more recent numbers

 

[BethG]

I did finance my first contract. I based the decision purely on the amount I would be paying per year (loan + dues). The total was less than my room would cost with cash.

However, with hindsight factored in, I think it turned out to be a pretty good deal. We bought direct at BLT when they were first selling. With the deals, the cost was $97/ point. We paid off at about 7 years in. The total amount we paid made it $144/ point. That is close to resale and less than Disney is selling direct now. Plus, we have enjoyed staying on our points for all of those extra years. (Including checking in on opening day of BLT).

 

[Tom P.]

I have an almost Dave Ramsey-level philosophical opposition to debt in most any form. We do not even have a credit card. So my perspective is skewed from the beginning.

However, as others have mentioned, I do not think it is ever wise to go into debt for what is purely a luxury item. A mortgage on a house, a reasonable car purchase that you need, repairing a broken heating and air system, that's one thing. But paying double digit interest in order to finance something that is purely a want, not a need? I just can't imagine ever justifying that.

Just my opinion, of course.