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The short answer is yes, sometimes timeshares can hurt credit. Timeshare expenses are volatile, unpredictable expenses. “Lenders look at timeshare expenses with a great deal of scrutiny, because they know that a timeshare may not be a fixed monthly payment.” (Source: A Consumer Credit). So, when you take on a timeshare, you’re inviting a new and potentially negative factor into your credit. If you’re not trying to acquire more credit and you make all your payments on time, you should be fine. However, if you have late payments or finance your timeshare, you may find your timeshare hurts credit.
But like many things related to timeshares, so much depends on your specific circumstances. Read on to discover your situation.
Many people choose to finance their timeshare purchase. Unfortunately, a timeshare loan is an unsecured loan with a high interest rate. Banks don’t love this type of debt. Here’s why. When you buy something of intrinsic value such as a car or a house, if you fail to pay, the bank or whoever gave you the loan can just take back the car or house. These types of loans, called secured loans, are far less risky for the lender.
A timeshare is not a secured loan because it is not backed by anything of value.
Wait a minute, you may be saying. My timeshare has value! Why isn’t it secured? That’s a great question. While your timeshare may have value to you, it’s not really an asset as far as lenders are concerned. (No matter what your timeshare rep told you.) Remember when they said this is an investment? Well, they meant an investment in your future lifestyle. A timeshare is not a financial investment. Your lender can’t sell your “vacation” to anyone else if you default.
Maintenance fees are the regular payments you make to cover your timeshare upkeep and other routine expenses. These fees are paid either annually or monthly. They typically increase each year. And you never finish paying them.
Many timeshare owners have no difficulty making their payments. However, you never know when your financial circumstances will change. If you miss any maintenance fee payments because you can’t afford them, you are at risk of being reported to a credit reporting agency. This is the case even if you have a legitimate dispute with your HOA for which you might be tempted to withhold fees. In either case, your credit would be damaged.
Just like failure to pay your home mortgage, failure to make loan payments or maintenance fees over an extended period can result in foreclosure. Foreclosure is a long and costly process and it can really hurt your credit.
“The presence of a foreclosure on your credit report probably will make it difficult to obtain new credit at the best rates, especially if you also have problems with other credit accounts… A foreclosure remains on your credit report seven years, so it will have a long-term effect on our creditworthiness. But, because negative information is deleted eventually, you can rebuild your creditworthiness if you take control of your debts and build a history of positive payments that will continue to appear after the foreclosure disappears. (Source: Experian).
Clearly, there are many ways timeshares can hurt credit. But can they help? Let’s say that you consistently pay your loan until it’s paid off and you always make your maintenance fee payments on time. Congratulations! However, if your resort or HOA doesn’t report to the three major credit bureaus, then those on-time payments won’t help your credit. You should pay on time whenever possible, of course, but it’s not likely that a timeshare will build your credit.
Now that you see the ways that timeshares hurt credit, you can make some decisions. If your financial situation is such that you can no longer make your payments, your best bet is to do what you can to avoid foreclosure.
It’s a good idea to start by talking to your resort or HOA and discuss any options they may have. Missed payments and foreclosure are bad for them and you, so it’s in their interests to work with you. They may be able to offer you reduced payments, a forbearance, or might be willing to allow you to deed back your timeshare. In any case, it can’t hurt to ask. You’ll have more negotiating power if your account is current, so try to contact them before you miss any payments.
When you have exhausted the options offered to you, you may want to consider options for exiting or canceling your timeshare. You can try to sell your timeshare, but this can be very difficult. Countless timeshares are listed on eBay for $1. You also must watch out for timeshare resell scams.
Or you can contact a timeshare cancellation service like Primo Management Group to help you exit your timeshare. Our whole business is dedicated to helping people exit their timeshares safely, ethically, and forever. Contact us for a free consultation today.