Going into a holiday weekend seems like a good time to address a reader’s question about timeshares and vacation clubs. What are they, what’s the difference between the two, and is one better than the other?
What Are They?
Arguably, vacation clubs are just another name for timeshares. It seems that big hotel and resort chains started vacation clubs in response to timeshares’ bad reputation. Vacation clubs and timeshares both let you buy rights to stay at a group of vacation spots or hotels for a certain amount of time per year. Typically, you buy a permanent membership, often structured as real estate.
Both timeshares and vacation clubs vary a lot from chain to chain but in general vacation clubs seem to be a little more flexible than traditional timeshares. This isn’t a hard and fast rule, though, since timeshares are increasingly becoming more flexible also. Because the two are so indistinguishable, I’ll just refer to both as timeshares for the rest of the post.
Timeshares have developed a bit of a negative reputation. A lot of this has to do with the high pressure sales tactics that have left many buyers realizing too late that they’ve committed themselves to an expensive long term contract. Don’t rush into buying a timeshare without closely looking at the numbers. If you’re listening to a sales pitch, don’t buy on the spot. Regardless of what they tell you, they’re not offering you a ‘once-in-a-lifetime’ deal. Companies make a lot of money off the timeshares and will always be willing cut you some kind of discount.
Many timeshares are simply overpriced. You an easily spend more over the life of the timeshare than if you were to simply book a similar vacation every year on your own. Furthermore, if you take out a 10 year loan to purchase the timeshare, as many people do, you are adding 10 years of high rate interest to the equation.
Timeshares lock you into an ongoing expenses. All timeshares come with hefty annual or monthly maintenance fees, club dues, or other fees. Even if you do buy a timeshare that is a good deal and is cheaper than booking a-la-carte vacations, you’ve got an expense that you can only get rid of if you cancel your contract or sell your timeshare. Canceling your contract typically means you forfeit your upfront investment. Selling your timeshare is often hard, and rarely returns close to your original purchase amount. A timeshare may fit in your budget now, but may become a burden when circumstances change.
A good deal on timeshares can indeed save you money in the long term. The timeshare does offer you some inflation protection, since you’re essentially locking all your vacations in at current prices. One good way to score a good deal on timeshares is by buying a re-sale. Because of all the downsides of timeshares and because a lot of people buy timeshares without considering the long term costs, timeshares typically re-sell for the fraction of the original cost.
Buying a timeshare does have some non-financial benefits. Once you own a timeshare, you don’t have the stress of searching for the best deal for every vacation. The timeshare also works as a vacation budgeting tool, since you’ve locked in a large expense of your vacations, and are essentially forced to set aside any additional portion on a regular basis.
If you do buy a timeshare, just be sure you understand all the costs. Know how it affects your budget and your long term financial goals. I would also encourage considering timeshares that offer as much flexibility as possible, including being able to bank points for following years for times when you are not able to take a vacation. If you’re seriously considering buying, I’d also recommend reading the FTC’s article on timeshares.
The alternative to a timeshare is budgeting and saving for your vacations on your own. If you simply budget what the timeshare would have cost you, you’ll likely be able to afford fairly nice vacations.
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- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.