In these recent times of economic uncertainty, over-extension of debt has caused financial ruin for thousands of people in North America and around the world. Learn why timeshares are bad debt.
Unfortunately, the timeshare industry has contributed to this bad debt. Our associates at Mexican Timeshare Solutions thought we would take this opportunity to differentiate between good and bad debt, and why timeshares should be categorized as bad debt.
Timeshare loan - Bad debt definition
Bad debt can be defined as purchasing something on credit that will decrease in value. Not only does the purchaser lose the value of the purchase, but also the interest paid to maintain the debt with the creditor. As many timeshares in Mexico are sold unethically, the definition of bad debt is compounded even further as the clients are liable for the debt of something that is not what was promised, and holds little to no value.
timeshare loan -Good debt definition
Good debt is the purchase of something that will increase in value over time and render the owner profits; for example, the purchase of a house, or an education. Although the purchaser must pay the initial price plus interest to maintain the debt, the overall outcome is positive because it increases the person’s earning potential or wealth.
Timeshare´s secondary market value
Many timeshare salespeople claim that timeshares are good debt because they are a financial investment (they are not, timeshares are a purchase). They often make statements that the timeshare is a deeded property and can be resold at a higher value. In reality, timeshares are not deeded properties and they lose significant value over time. Timeshares in Mexico are contracts for use of a property for a fixed period of time, and as such, the value of timeshares depreciates over the years, as the amount of use remaining diminishes. This makes timeshares a bad debt, and the salesman’s claims of a good financial investment a form of timeshare fraud.
Another common timeshare scam is the promise to rent out the timeshare weeks for financial gain. With this verbal promise in mind, many clients overextend themselves to make the timeshare purchase, thinking that the profits will cover the timeshare contract payments. Whenever making a large financial investment, it is important to consider the debt to income ratio and whether the client can afford the payments if the rentals do not occur.
As the promise of rental income is a very common form of timeshare fraud that the salespeople use to sell more timeshares, thousands of people find themselves stuck with timeshare contracts with payments that are much greater than they can really afford.
Misrepresenting timeshare as being tax deductible
Many financial advisors also state that debt that is tax-deductible can render benefits to the consumer as they can offset the interest in tax savings in order to make a wise financial investment. A common timeshare scam is for the timeshare salesperson to claim that the purchase is tax deductible in the US or Canada. This is a fraudulent statement. Timeshare purchases made in Mexico are not tax-deductible in the US or Canada.
Timeshares hold a high interest rate
Timeshare companies often set up financing for their clients to facilitate the purchase. They claim that the financing is low-interest. In reality, many timeshare companies in Mexico have relationships with large credit card companies, such as Bank of America. They set up credit cards for the new buyers, with a low interest rate for 6 months. After the 6 month period, they increase to very high rates, often over 20 - 25%. As these are large purchases, most people do not pay the entire balance before the due date and consequently are required to make high interest payments. Every month that they timeshare owner makes a partial payment, they are charged interest. This is considered bad debt as the value of the timeshare continues to lose value, and the amount being paid for the timeshare scam continues to increase.
While the concept of good debt vs. bad debt is very simple and logical, many people make quick financial decisions when they are on vacation, let their guard down, and are pressured by carefully crafted sales methods.We urge people to consider their financial ability to pay for the timeshare, and research the company that they are investing in, before making a financial decision that will affect them for decades.
If you feel you have been coerced into purchasing a timeshare under false pretenses, contact us at Mexican Timeshare Solutions today for a free consultation on how to cancel your Mexican timeshare contract and relieve yourself of the bad debt.
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