What are the Best Aircraft Financing Options? How to Pay For That Plane You Really Want!
Do you have to be a celebrity like Oprah or Jay Z to own an aircraft? While owning a luxury jet may seem unattainable, there are ways for the average Joe to finance an aircraft, it just might not be a $45 Million Dollar Gulfstream. Despite what people think about aircraft and their values, there are aircraft for every budget. Are you a pilot without a plane? Have you completed the requirements to become a pilot and are wondering, "Now what?" Do you have your eye on a plane, but you are not sure what you can afford or how to finance one? Are you wondering if you can afford the fees and insurance? If you have been dreaming of buying an airplane, but aren't sure how to finance it, you've come to the right place. Keep reading to learn the best aircraft financing options out there.
Aircraft Financing Options
There are so many aircraft available today that you can literally spend hours trying to figure it all out. Do you buy an older Cessna 172 and modernize it? Can't find a 172? Maybe you are looking at a home built or an experimental, or even an LSA? VREF tracks hundreds of aircraft and many of them are built by manufacturers offering considerable advantages over an aircraft from a well-known manufacturer. After all, some people prefer being the first owner and enjoy the process of ordering and building their own planes. Owning an airplane can be a reality. Buying a plane will take some careful planning, but it's a dream that can come true. Let's look at your options.
1. Cash is King
The first most obvious way to finance your airplane purchase is to pay cash or utilize a home equity line of credit. Depending on the price of the aircraft and of course the aircraft type this maybe your best or in some cases your only option. Banks tend to shy away from lending on homebuilt aircraft, but there are always options.
2. Aircraft Loan
You can shop around and find that there are lenders that specialize in funding specifically for aircraft. Fixed and adjustable-rate aircraft loans are available. Typically, the plane will be used as collateral but your credit worthiness still has an impact! Expect most lenders to require higher down payments with an increased interest rate for anything less than excellent credit. You can usually finance between 70 and 100% of the value of the aircraft (this is referred to as LTV or Loan to Value). Expect the term to be as long as 20 years to pay back the loan with a reasonable interest rate. Lenders that specialize in aircraft loans are easier to deal with and often require a lot less paperwork. A great resource to check out is AOPA Finance.
3. Personal Loan
I know what you're thinking, personal loans are usually for smaller amounts of money. How can I finance a plane? A personal loan can be a quick and easy fix, as they are personally guaranteed and no one will ask about the aircraft. Be aware: terms are shorter equaling higher payments, and you need excellent credit to obtain a more substantial personal loan. A smart approach is to take out the personal loan (make sure there are no pre-payment penalties) and then refinance as soon as you can.
4. Lease Rather Than Buy
You can look into leasing as an option. Leasing an airplane from the owner means that you are renting it for a specific time frame. Be aware maintenance reserves, return provisions and insurance costs are still going to be required. So if you are tight on capital and need an aircraft for training purposes this may be an option (we still like flying clubs better for non-business aviation leases). One of the upsides is that in a lease agreement is that you may have some tax incentives so check with your accountant to see if this makes sense. Leases of aircraft are regulated by the FAA (Federal Aviation Administration) and we advise you to hire a professional if you plan on using a leased aircraft in Part 135 operations as you may be creating substantial liability for you and your estate.
Order the Appraisal and Get a Closing Date!
Now you've learned the options available for aircraft financing you will want to get your appraisal ordered by VREF and soon you'll be on your way to having your aircraft. Like what you've seen so far? Check out our other articles geared toward airplane ownership newbies.