Credit scores are only one of the criteria that lenders use to evaluate loan applications, but borrowers with the highest scores stand the greatest chance of qualifying for the best rates and terms. It’s a great idea to get a handle on your credit profile before applying for any loans. You are entitled to view your own credit reports for free on all 3 bureaus, and an easy way to do that is to visit Annual Credit Report.
In addition to your score, things to look out for are any late pays or collections, as lenders will want explanations for any of these issues. You should also take a look at the percentage of your revolving credit that you are using.
Tactics to Improve Your Credit Score:
- Reduce your credit card balances. If you are using more than 30% of your available revolving credit, it tends to negatively affect your score. Before applying for any loans, you may want to consider paying down balances. Another technique to reduce your utilization percentage is to raise your credit limit. You would do so by asking your credit card company if they are open to increasing it.
- Establish a strong borrowing history. Lenders like to see comparable borrowing experience in the form of installment loans, not just revolving credit. Having borrowed comparable amounts to your loan request will help your chances of approval if you have handled your credit responsibly and have no late payments.
- Address any credit issues ahead of time. Compile correspondence or proof regarding the circumstances of any late pays or collections. If bills went unpaid due to a bank error, get documentation regarding that if you can.
Securing an Aircraft Loan
There are several factors banks look at when deciding whether to approve an aircraft loan:
- Credit score – some banks have minimum credit scores. Most like to see your score at 700 or higher. Some require scores as high as 740.
- Borrowing experience – banks like to see that you have borrowed at a comparable level to that of your loan request, and have repaid it in a timely manner.
- Debt-to-income ratio – banks look for a debt-to-income ratio no higher than 40% – 45%
- Liquidity – banks want to see that you have the down payment for the aircraft available in the bank or in the form of readily marketable securities. They also want to see a cushion beyond the down payment for maintenance expenses and debt service.
- Cash flow – you will need to show that your source of income is ongoing. If you are a W2 employee, you will need a current paystub. If you are a business owner, you will need to show that the business is providing enough cash flow to service your debts and the proposed debt aircraft debt.
- Tax Returns – banks use historical Tax Returns to analyze cash flow. Personal loans require two years of Tax Returns whereas commercial loans require 3 years.
Choosing from Aircraft Financing Companies
The Aircraft Lenders partners with a mix of traditional banks, credit unions, private lenders, and specialty finance companies. These aircraft financing companies have varying rates, terms, and eligibility criteria. An ideal lender, therefore, depends on the aircraft you want to acquire, the mission for the aircraft, and your unique requirements and financial position.
Aircraft Financing Options
Typical aircraft loan options include:
Term loans – these usually involve 15% -25% down, depending on aircraft mission. For consumer loans, a 15-year term with a 20-year amortization can be possible up to about the $5mm mark. For aircraft loans that involve a charter mission, a 5-year term with a 15-year amortization is the norm.
Leases – these are usually commercial products. Typical terms are 5 years, and they can be structured so there is a purchase option at the end of the lease. Operating leases, which are more like a contract to rent the aircraft over a period of time, are also possible.
How to Finance an Aircraft
Financing an aircraft involves assessing your financial capability, exploring loan options, comparing airplane financing rates from different lenders, and finally, application for the aircraft loan. The best way to approach this is to engage with a reputable aircraft financing broker, such as The Aircraft Lenders.
