Getting a loan for an aircraft of your choice can be an endeavor; however, financing is an available option (of course, depending on a few factors).
You might first assume that obtaining a loan for aircraft is a similar process to buying a car. In reality, funding your plane through a lender follows more closely with buying a home.
The time frame is longer. Lenders offer different rates depending on your net worth, credit history, and aircraft model. How you plan to use the airplane can also be a consideration. There are also more types of lenders than one might be aware of, from large banks to regional credit unions. We will go through them all.
Here, we’ll provide you with an outline of the basics on how to get a loan for aircraft and important details to keep in mind before moving forward with your purchase.
How To Get a Loan For An Aircraft
There are several steps to take before you begin applying for your aircraft loan.
We can provide information to help you get started. But navigating through the process is always easier if you choose to connect with a lender such as AOPA Aviation Finance. Their Loan Specialists are available to help you find the best rates. This includes various situations you may be in financially to steer you in the right direction. You can always call me for a referral, and I am happy to introduce you to several potential lenders.
Figure Out Your Budget
Before anything else, set your budget accordingly. This step with good attention to detail will save you a lot of time and energy in the long run.
Most aircraft loans require anywhere from 10-30% down payment or 18 months of payments in liquid assets and a credit score of 700 or higher. Some lenders may even consider you for a loan if your credit score is as low as 650. Others will look past your credit score altogether and focus solely on the aircraft as collateral. No matter what, be prepared to put some skin in the game and place a deposit.
Some lenders will be taking a comprehensive look at your credit history as opposed to your credit score alone. This may include an analysis of your revenue, earnings, and ability to show your business was not negatively impacted by COVD-19.
During this step, it’s also a good idea to shop around and look at different interest rates depending on the type of aircraft you have in mind. Lenders will often have varying interest rates depending on aircraft models. But remember, they’re also factoring in your down payment, term length, and credit.
Once you have a clear idea of your available funding, credit score, and history, choosing an appropriate aircraft for your budget becomes much easier.
Aircraft lending is a specialty and not all banks will provide loans for aircraft purchases, although some may be coerced into doing it for you based on your relationship. You can also go through an aircraft finance broker, and for many buyers, this is a great option. Having a professional that understands the asset as well as the finance community will be a major advantage in shopping for terms as well as finding a lender that may not be so obvious. Most buyers are unaware of the fact that lenders include credit unions, small regional banks, finance companies as well as alternative lenders that may look past credit issues.
Provide Appropriate Documentation
Now, you can gather appropriate documentation like tax returns, W-2s, and personal financial statements to include with your loan application. Lenders usually want to see two years of tax returns as well as a current-year-to-date income statement.
If you have a specific aircraft in mind, it’s a good idea to include a spec sheet on the airplane so that its value can be verified by an Accredited Appraisal company, like us at VREF.
After your documents are in hand and you’ve connected with a lender, you can submit your application.
One key difference between applying for aircraft loans and other kinds of loans is that the timeframe for approval is much longer.
Once submitted, the process can take 1-2 business days for a lender to approve your application. Then it takes another 5-7 business days for the loan to actually close. Keep in mind a commitment to close is contingent on the appraisal, so make sure you are working with VREF well in advance if you are dealing with a tight timeline. IN most cases, we can complete both on-site and desktop appraisals in a couple of days.
Get Pre-Approved For a Loan For an Aircraft
One option for financing is to get a pre-approved loan. Doing so can make the purchasing process faster and potentially easier.
A key benefit of getting pre-approved is that you’ll know exactly how much funding you’re working with. This means you can spend more time finding the best airplane within your budget. Additionally, you can avoid an unfavorable outcome if you set your eyes on a plane that your loan won’t cover.
Furthermore, a seller is more likely to go with your offer than a buyer who isn’t pre-approved because they know you can make the deal work. This is a powerful leg-up on any potential buyer competition on your ideal aircraft.
Consider Co-Ownership
Going in with another party on financing an aircraft is the same application process as if you were applying for a loan by yourself but comes with a few advantages.
When applying, both parties will have their financial documents verified. However, the two buyers will be underwritten individually. This means that both parties’ tax returns and a credit will affect the loan and terms you’re offered.
So choosing the path of co-ownership can provide you with the opportunity to purchase an aircraft that may have previously been out of your budget if you were making the purchase alone. Or cut your initial costs by a large sum. Additionally, lenders have the ability to be more competitive with rates when prospecting sellers.
If you go this route, you should be certain that your partner (or partners) are people you trust. And take into consideration how many flying hours you and your partner are planning to log. This way, you can work around each other’s schedules if you want to take out the aircraft without all parties on board.
Understand Leasebacks
While leasebacks might sound like a good idea in concept, you should weigh all the pros and cons before going through with one.
Yes, if you lease out your aircraft to a flight school or flight club, the organization may handle all the maintenance components of your aircraft. But that isn’t always the case.
Typically, you can expect to receive some payments from the operators renting out your aircraft. But depending on the arrangement, you may be left funding any upkeep and necessary repairs.
Because of this, a good number of lenders are wary about the risks associated with leasebacks.
And while flight clubs may have more experienced pilots than flight schools, the wear and tear placed on the airplane can still be significant. On the other hand, flight schools have a couple of inexperienced pilots with many flight-time hours and mileage.
Remember, just like with any asset that you own, once your plane undergoes considerable wear from consistent use, the value of your aircraft will suffer.
Take extra time to understand how your leaseback arrangement will play out. Think about who will be paying for maintenance, the money you can expect to receive from renting out your plane, the cost of your loan, and again, how many miles you can expect your aircraft to log.
If you’ve worked out an arrangement you feel satisfied with; some lenders will consider leasebacks. However, most do so without including all the options usually available to a normal loan because of the extra factors involved.
Find a Lender
After you have completed the applications and organized all required documents, it is time to proceed in securing the loan.
Try to shop around to find rates close to your budget and funding requirements, ask for referrals, seek out existing relationships with your local bank. You may already have a relationship with a lender willing to provide the loan on your aircraft even if they don’t specialize in aviation.
While you can apply directly to different lenders, consulting AOPA can help you find the right lender in an expedited process.
Owning your own aircraft is a gratifying experience. An airplane can be a valuable asset. Flying your own plane, taking the time to maintain it, and sharing the experience with others in your life is a great way to share your love of flying.
Not to mention the convenience you can experience having another way of traveling besides hitting the road!
Receiving a loan for aircraft might seem like a complicated process, but by doing your research and considering all your options you’ll find a loan and plane that fulfills your goal of aircraft ownership.
Connect With Expert Aircraft Appraisers
Purchasing aircraft is a momentous decision. To be sure you have the best information available on the value of an airplane, reach out to the aviation experts at VREF. Appraisals and valuations will give you trustworthy knowledge you can keep at your disposal before finalizing your purchase. Connect with VREF today to start the process.
