Aircraft Financing (collage)

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Top 10 Q&A For Aircraft Loans

© Copyright D. Alan Carter
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Aircraft Loans - How much can be borrowed on an aircraft?

Lenders will vary, but in most cases you can borrow from 85% to 90% of the aircraft’s purchase price or the appraised value – whichever is less. Keep in mind that the larger the down payment, the lower the interest rate and the easier the credit review.

Aircraft Loans - What are typical loan rates and terms?

Interest rates can be fixed or variable, the exact rate being determined by the following:

  • size of the down payment
  • size of the loan (larger loans typically generate lower associated interest rates)
  • simplicity of the loan (complicated corporate structures or multiple borrowers increase underwriting costs)
  • model and make of the aircraft
  • age of the aircraft (vintage aircraft = higher rates)
  • credit history and capacity of the borrower

When interest rates are decreasing, there is always the temptation to go with a variable rate, but a long-term fixed rate remains the better bet if you plan to keep the aircraft three or more years.

Terms are typically 20 to 25 years, although some lenders may offer a 3 to 5 year balloon with the goal of reducing the interest rate.

Aircraft Loans - What do I need to provide in order to start the application process?

Lenders will vary, but in most cases require a completed application form, a copy of the aircraft sale/purchase agreement, a spec sheet on the aircraft in question, the last two years of your IRS tax returns, and a copy of your driver’s license and your pilot’s license.

Most lenders are able to pre-qualify you online or over the phone in a matter of minutes. Pre-qualification lets you know your purchasing ceiling, and provides the chance to evaluate the policies and personalities of a lender firsthand – before making a financial commitment to pursue the loan.

Aircraft Loans - Is an appraisal required?

It depends on the lender and the aircraft. The purchase of a new aircraft typically doesn’t require an appraisal. On used planes, the more experienced the lender is with the aircraft industry, the less likely the need for a formal appraisal.

Many times the lender can make an accurate judgement with nothing more than a description of the aircraft, avionics, and engine/airframe time. Other times, especially for higher loan values or for aircraft with less familiarity, an appraisal will be ordered. It’s the lender’s call.

Read how an appraisal differs from a Pre-Buy Aircraft Inspection.

Aircraft Loans - Does the lender require aircraft insurance?

The lender will require that you maintain full ground (physical damage) and in-flight insurance for the duration of the loan. Your lender will be named as the "loss payee" on the title. Proof of insurance will be required at the closing.

Aircraft Loans - Should I consider setting up a corporation to buy the plane?

Lenders certainly lend to corporations and LLC’s (Limited Liability Corporations). Such loans are more complicated to underwrite and my incur more costs, but there may be advantages from a tax and liability perspective. The tradeoffs are best explored with an accountant or tax attorney.

Aircraft Loans - How long does it take to get an aircraft loan approved and closed?

Lenders will vary, but one to three days is fairly routine. Many offer same-day approval and next business day closing. Assuming, of course, all document ducks are in a row.

Aircraft Loans - What takes place at the closing?

At the closing, the loan documentation is executed and funds and title are transferred. The closing will be handled by the lender, a title company working on behalf of the lender, or an aviation attorney working on behalf of the lender.

Aircraft Loans - What are the closing costs?

Closing costs typically include application fee, title search fee, title insurance premium, appraisal fee (if an appraisal was ordered), and recording and registration fees. The actual dollar amount will vary by lenders, and should be provided and itemized prior to application.

Aircraft Loans - Who pays closing costs?

Typically, the borrower. Of course, as with most things in life, nothing is carved in stone. Depending upon the financial strength of the borrower, the relationship of the borrower with the lender, and the overall competitiveness of the lending industry at any given time, the borrower may be able to negotiate the allocation of closing costs between borrower and lender.

A more thorough discussion on lending procedures can be found in the ABC's of Aircraft Financing. And for practical tips and advice from borrowers themselves, see Aircraft Loans, Moans and Groans.

-– D. Alan Carter

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