By working with the right lender, it’s possible to obtain financing on purchases that you normally wouldn’t. While many people take advantage of this option to buy a home or a car, some individuals need to finance aircraft purchases.

With such a large transaction, you’ll want to ensure that you get the best terms possible on your loan in order to save the most money. 

Let’s explore everything you need to know about how airplane financing terms are calculated.

1. The Total Amount of The Loan

As you may expect, the total amount of your loan plays a large role in the terms that will be subject to. In general, most lenders require that borrowers take out a minimum of $50,000 for their purchase. But, some lenders may require a higher minimum for their loans.

Generally, larger loans come with a wider array of payment options. They also typically come with lower interest rates due to how long the loan will take the borrower to pay off.

But, it’s not impossible to find airplane financing for lower amounts with lower interest rates. In these cases, though, the repayment period will also be shorter, which is something to keep in mind when budgeting for your aircraft. 

2. Your Intended Use

Interestingly, your intended use for your aircraft will drastically influence the terms of your loan

For example, there’s a large difference between a borrower who needs a small plane for personal use and an entrepreneur who needs a plane for their flight school. The same can be said about someone who intends to use their aircraft commercially and fly for a large number of hours each week.

When a lender provides money to the borrower, they are essentially establishing co-ownership of the purchase with that individual. So, it wouldn’t make any sense for a lender to disregard how often an aircraft will be flown, the conditions that it’s stored in, etc.

In the event that the borrower can no longer make payments toward the loan, the lender may choose to repossess the aircraft. In order to make up for the lost money, it would be in their best interest to sell it.

But, this can prove to be exceedingly difficult if the value of the aircraft has significantly depreciated over time.

3. Make, Model, and Overall Condition

The same concept that applies to car financing also applies to aircraft financing— certain makes and models will elicit different terms from your lender than others will.

In some circumstances, this could result in you having fewer payment options than you anticipated.

For instance, an aircraft that makes use of vintage equipment is often much more difficult to sell than a modern plane is. As a result, this means your financing options will be more rigid.

It’s important to note that the term ‘vintage’ in aviation doesn’t necessarily mean something from 30 or 40 years ago. Avionics equipment tends to depreciate relatively quickly, so its value will be drastically lower after just two or three years. 

Your lender will also factor in the time and condition of the plane’s engine, as this is one of the key attributes that define the value of the aircraft. Even if the rest of the aircraft is in great shape, a plane with engine problems will be extremely difficult to finance. 

4. Age and History of The Aircraft 

It should come as no surprise that older aircraft are generally something that lenders are not interested in. As previously mentioned, avionics equipment degrades at a notably rapid pace. Some older aircraft are also reportedly less safe to operate.

Unless certain parts retain their value and could potentially be salvaged from the aircraft, there’s a high chance that an old plane will be exceedingly difficult for your lender to sell if they needed to. But, there are scenarios where older aircraft can be financed relatively smoothly.

The chance of this occurring increases exponentially if you’re able to provide your lender with a comprehensive history of the aircraft. This means detailed logs about any repairs, ongoing maintenance, and any damage that it’s experienced in the past.

Buyers should be vigilant when looking for this information, as sellers don’t always offer it upfront. If a seller that you’re looking to work with will not provide you with extensive documentation about the aircraft, it’s in your best interest to look elsewhere.

To give yourself the best chance of securing financing on an aircraft, you should be able to show your lender an extensive amount of documentation and photos to give them a better understanding of the plane’s specifications, history, and current condition. 

5. Your Down Payment

The most common range for aircraft financing down payments is between 15% and 20%.

Depending on a certain number of factors (such as loan history, credit, etc.), you may be able to find a lender who accepts a 10% down payment. In aviation, it’s virtually impossible to find a lender who will accept a lower down payment than that.

The more you put toward your loan at the time of borrowing, the more flexible your repayment terms will be. For instance, someone who puts down 25% toward the aircraft may find themselves with a longer repayment term and a lower interest rate than a buyer who puts down 15%. 

Navigating Airplane Financing Terms Can Seem Difficult

But it doesn’t have to be.

With the above information about airplane financing terms in mind, you’ll be well on your way toward finding a lender who’s able to accommodate your needs.

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