What You Need to Know About the Aircraft Loan Process
If you’re an airplane enthusiast and been flying in other people’s aircraft or renting a plane, then you’ve likely considered buying your own. Unlike buying a house or car, buying an airplane, whether it’s a single-engine Cessna or a private jet, is more complicated than you think. Amongst several factors, it can be difficult to find a lender to finance the plane of your choice. Here is what you need to know! The good news is you can find a loan and get the airplane of your dreams if you take the right steps. The aircraft loan process can be cumbersome, some lenders make it a breeze, but we’ve outlined it and provided tips so you can find the perfect loan for the type of aircraft you want to purchase and why wait the summer is going by quick.
Determine the Kind of Aircraft You Want
There are many types of aircraft available from home-built models to extravagant private jets worth millions. You need to know what you’re looking for and find a bank that specializes in that equipment. Speaking from experience there is nothing worse than bringing a bank a deal outside their sandbox for lending. While your neighborhood or regional bank can help you buy a house or a car easily, odds are the loan officer doesn’t know much about planes. A great source to locate an aircraft lender is through the AOPA. AOPA finance does a phenomenal job providing loans to aircraft purchasers, and we work with enough to know they understand customer service. You can also call us at VREF 844-303-VREF and we can provide you with a lender that we work with for your specific equipment type. Once you’ve determined the kind of plane you want and discovered what its approximate value is (hopefully by using VREF Online via AOPA website or through VREFOnline.com), you can start talking to banks and lenders about the purchase. Most if not all banks will require you to obtain a pre-approval and an appraisal before they will commit to the loan.
Choose Your Aircraft Loan Period
If you’re looking to finance a home-built plane, then you might have a harder time finding a loan but this is where the experienced appraiser will come in and help you. Experimentals and home-built aircraft require specific knowledge to generate a proper value and in turn, get a lender comfortable with the value both current and future residual. So if you are relying on the asset for financing, then you want to engage VREF Appraisers early on in the process. For other types, the loan process begins by filling out an application, running your credit, getting your income information, yep the typical stuff you need to send any bank for a loan. They’ll want to make sure you’re able to pay for fuel and maintenance on the aircraft and in some cases require you to set aside funds in a segregated account for future maintenance. Engine programs are often the accepted cure for this type of situation, so if you have a piston aircraft then you will want PistonPower and if you have a turbine-powered aircraft you can use JSSI, MSP, ESP, GeOnpoint, EAP and a number of other programs to satisfy your lender. Unlike a car or a home, planes can be a higher financial risk. If you default, it’s more challenging for the lender to sell it, and there can be severe depreciation if it’s a new plane or one that does not have a consistent market. This is where an appraiser will be hired by your bank to determine what OLV and/or FLV (Orderly Liquited Value or FOrced Orderly Liquited Value) and it can get ugly very quick. The bank will be faced with repossession, storage, maintenance, insurance and remarketing. Once you have been approved the terms of the loan will be established, typically you have a fairly good idea from your lender what you will be dealing with both in terms of the interest rate and the length of the loan. Again, your credit and the strength of the asset will determine both the loan to value and the down payment. Most lenders will include ADS-B Out, Avionics upgrades and in some cases, they will even finance the refurbishment, so be sure to ask before you find your self knee deep in upgrades that tend to get awfully expensive.
Buy Your Plane
Getting an aircraft loan can be difficult, but if you really love to fly, then it’s worth all the extra work. Once you’ve hammered out the loan details and you’re approved, you’re one step closer to riding the clouds in your own airplane. If you want more information about aircraft financing to valuation, then explore our site. If you would like a referral to a lender that can assist please be sure to contact AOPA FInance or ask VREF for help!