Aircraft Loan & Financing Terms – Complete Guide

You’ve identified the piston-driven, turboprop, helicopter or jet aircraft you wish to purchase, so now’s the time you focus on aircraft financing. We’re proud that Assets America® has a full line of business dedicated to aircraft financing including airplane financing terms. In this article, we’ll review the different types of loans available for the purchase of aircraft. We’ll look at typical aircraft loan terms and the factors that affect them. Purchasing an aircraft is a significant transaction, so prepare yourself with a thorough understanding of airplane financing terms.

Bombardier Business Aircraft Market Forecast – 2016-2025

What are Typical Aircraft Loan Terms?

Most financing methods for purchasing aircraft specify a common set of airplane loan terms.

Interest Rate

The purchase price of the aircraft strongly influences the interest rate of the loan, as does the loan amount. While the aircraft collateralizes the loan, lenders still look strongly at a buyer’s credit score. Normally, the price and interest rate are negatively correlated. Airplane loan terms are usually on a fixed-rate basis although you may occasionally encounter variable-rate deals. Look for higher rates for commercial aircraft loan terms.

Down Payment

Your ability to finance an aircraft purchase may depend on the size of your down payment. For private and business aircraft, 15% down is typical. If your credit is exceptional, you might be able to wrangle a down payment of only 10%, however, you may pay higher interest. If you have poor credit, your down payment requirement might increase to 30%. The down payment on commercial craft usually ranges between 20% and 30%, depending on the loan term. Specifically, a higher down payment can get you a longer term.

Term & Amortization

In a typical aircraft loan, the amortization period is not always the same length as the term. Balloon payments can be available, such as 20-year term with a balloon payment due after five years. Aircraft built from 2010 have terms up to 20 years. Older ones have terms between 10 and 15 years maximum. Because commercial aircraft depreciate faster, they can have a shorter term.

Monthly Payment

The payment works just like a home mortgage. Most interest is up front. For example, you may only gain 2% equity in the first year. If your contract specifies no prepayment penalties, you can pay off the loan at any time without triggering additional expense. The aircraft loan terms also vary based on aircraft supply and demand.

Detailed Breakdown of Aircraft Financing Terms

This table summarizes typical aircraft loan terms for various types of aircraft:

AIRCRAFT CATEGORY DOWN PAYMENT TERMS SAMPLE RATES*
Experimental / Kit (Airworthy) 15% Up to 20 years 5.75-6.80%
Kits 20% Up to 10 years 7.25-7.50%
Light Sport 20% Up to 15 years 5.25-6.15%
Piston Single 15% Up to 20 years 5.15-6.50%
Piston Twin 20-30% Up to 15 years 5.95-6.50%
Turboprop & Turbine 15-25% Up to 20 years <4.00-5.00%
Helicopters 20-30% Up to 10 years 5.00-6.50%
Warbirds / Antiques 30% Up to 10 years 5.50-6.50%

Aircraft Financing Documentation

A typical transaction will require:

• Two consecutive years of filed tax returns.
• Year end statements for the last complete year (i.e., 1099s, W2s, K-1s, etc.).
• Sales contract
• Aircraft registration form.
• Promissory note
• Aircraft security agreement
• Guarantee/pledge
• Authorization

Factors That Affect Your Aircraft Loan Terms

The following factors affect aircraft loan terms.

Aircraft

The most basic of the aircraft loan terms is the aircraft’s identity. It starts with the type of craft and its propulsion, such as piston-driven, turboprop, helicopters, and jet aircraft. In today’s market, you won’t find many piston aircraft manufactured before 1960. It’s easier to find and finance aircraft produced after 2000 and even better when it’s 10 years old or less.

To identify the aircraft you wish to purchase, you must specify the manufacturer and model number. If you’re contracting for new units, more detailed identification must wait until craft construction and registration. Used craft are already registered. To identify a particular unit, you specify the serial number, which is a unique code for each aircraft. The code adorns the exterior of the craft and identifies country of registration. The Certificate of Registration also lists the serial number, as will the financing documents. The aircraft registration number is separate from its serial number. In the United States, registration numbers begin with the letter N.

Engines and propellers also carry identifiers – make, model, and serial numbers. The contract of sale specifies all the required identifiers.

Purchase Price

The purchase price directly bears upon the amount of financing you can arrange. The major factors determining aircraft price include:

• Airframe:  The age of the airframe and the number of hours flown directly impacts purchase price. The impact of airframe hours on price lessens over time as aircraft age begins to dominate.
• Engine Hours:  Every engine has a recommended period between overhauls. Prices fall as you approach the next overhaul. Consistent engine use and maintenance helps to stabilize price.
• Installed Equipment:  The quality, age, and extent of installed equipment influence the purchase price. For instance, you might double the price of an older aircraft by installing new avionics. On the other hand, old equipment and dated technology drive down prices due to higher maintenance costs.
• Records and Airworthiness Directives:  The aircraft should have records demonstrating responsiveness to Airworthiness Directives and maintenance needs. You should examine the craft’s engine/airframe logbooks, airworthiness certificate, equipment list, weight and balance data, flight manual and placards. If any documents are missing or short pages, the price will suffer.
• Damage History: Used aircraft may have a history of damage that reduces price. You should review the types of accidents or incidents, the nature of the damage (if any), repair details, and impact on major components. A pre-purchase inspection will closely examine the damage history to ensure proper repairs conforming to FAA regulations and practices.
• Paint:  A recently completed paint job can increase the craft’s price, but it can also hide subsurface corrosion. A thorough inspection should be able to detect corrosion.
• Interior:  You may not want to pay for someone else’s taste in interior furnishings. However, sellers may refurbish the craft’s interiors to bring them current. The impact depends on your own personal taste.

Use

How you use it affects the aircraft loan terms. Part 91 aircraft are for private business or personal use. It usually requires a lower down payment, a longer term, and a lower interest rate. Commercial aircraft have higher utilization, so they require higher down-payments. These craft fly more each month and thus suffer increased wear and devaluation. Lenders structure aircraft financing terms such that the owner won’t owe more than the craft’s value.

Aircraft Loan Calculator

Use the Assets America® Loan Calculator by clicking here. You simply enter the aircraft financing terms and click the button.

Frequently Asked Questions

How long does aircraft financing typically take?

Many buyers assume that an aircraft loan can complete in half an hour, just like buying a car. In reality, it will take at least a few days for a simple loan. More complex financing will require additional time.

How many years can you finance an airplane?

Usually, the longest financing term is 20 years. Older aircraft may have a limit of 10 to 20 years. You can also arrange a 20-year amortization on a five-year balloon payment purchase. Other aircraft financing terms may be available.

What credit score do I need to buy an airplane?

Perhaps not surprisingly, your credit score is very important when applying for an airplane loan. The reason is that airplane collateralizes the loan, but your score shows the likelihood that you’ll make your payments on time. Because it is a secured loan, it often carries a relatively low APR.

How much does a private jet cost?

There’s a huge range in the price of private jets. You can get a small used jet for under a million dollars. A fancy new private jet may cost 100 times more than that. There is no shortage of incredibly, high-end, expensive private jets.

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