Can You Make Timeshare Payments with Plastic?

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A loyal reader recently asked us an interesting question about whether or not it is possible to pay for a timeshare with a credit card. They only owed a few thousand dollars and thought that perhaps they could pay that balance off with plastic.

I know a fellow who, back in the 1990s, used credit cards to make down payments on low-priced foreclosure properties. He could not afford to pay cash, but back in those days credit card companies had no problem with this strategy and neither did his real estate broker.

Other investors did the same thing, enabling them to pick up cheap houses that they would later sell for a profit to pay off the mortgage. That would probably never work in today’s economy, though, because lenders want you to come up with your own down payment instead of borrowing it. Normally it is not possible to make a mortgage payment using your plastic, so it would be safe to assume that timeshare payments fall under the same credit card guidelines, right?

Timeshare Financing is Based on Unsecured Loans

Timeshare payments, however, don’t fall into the same neat category as a typical residential mortgage. A mortgage is always secured by the property it is used to purchase. In the event of a default, the lender has the legal right to repossess or foreclose on the home and sell it in order to recoup their losses. The risk of lending to a homeowner, in other words, is offset by the value of the underlying real estate. Usually a bank will recover around half of their money, if not more, when they go through the foreclosure process.

When you buy a timeshare, though, you do not actually have outright year-round ownership of the property. You only purchase the right to use it for a specific amount of time each year. The developer has a stake in the property and so do the other individuals who also bought into the timeshare program for that particular unit or condo. The shared nature of the property and your restricted right to use it make it impossible for you to pledge it as collateral on a loan, since it doesn’t actually belong to you.

Does that mean timeshare holders can pay off the timeshare with plastic? Unfortunately, the answer is no. Credit card companies don’t accept charges to their customer’s accounts if they know that they are being made by mortgage companies or timeshare financing companies. Furthermore, you should also be aware of any penalties that may be assessed if you pay off a timeshare loan early. Timeshare companies make a profit off of their financing, so if you cut it short, they are going to try to recoup some of that lost income from interest.

Pay it Off with Home Equity

To come up with another solution, many people take out a home equity loan and use that cash to pay off their timeshare. There are two potential pitfalls to that strategy that I would advise against:

  • Whenever you borrow with home equity, the collateral for that loan is your home. You are literally pledging the roof over your head and saying that the bank can take it away if you fail to repay the obligation, which is a tremendous risk. What if you got sick, lost your job, or experienced some other unplanned financial hardship? You could lose your home just trying to pay off a timeshare.
  • Secondly, home equity is the only real cushion you have to insulate you from a drop in real estate prices. Last time we had a housing crisis millions of Americans wound up owing more on their homes than the property was worth. That condition of being “underwater” can be calamitous and make it impossible to refinance, sell and pay off the mortgage, or avoid a foreclosure.

Don’t jeopardize your home in order to pay for a much less valuable and less important timeshare arrangement. The risk of losing your home or your accumulated equity is just too great compared to the benefit of enjoying a timeshare.

The Bottom Line

Paying for a timeshare with a credit card could be a great way to rack up lots of cash back rewards or other loyalty program goodies; unfortunately, credit card company policies don’t allow for that kind of strategy. One way around that is to take out a cash advance and deposit it into your checking account and then use those funds to pay for the timeshare. I would not recommend that strategy, however, because you will pay a very high rate of interest, plus a one-time surcharge, to use a cash advance.

A better approach is to try to qualify for an unsecured loan from your bank or credit union that carries a reasonable and affordable rate. If you must take a loan to pay for your timeshare, shop around for an unsecured loan. Finding one that offers a more affordable interest rate than what you are currently paying on your timeshare financing may save you a lot of money in the long run.

*Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.

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