Discerning which lenders offer the best rates and terms for aircraft financing can be a difficult task, as there are so many options for aircraft loan financing available in the market. That’s why it’s very helpful to work with an aircraft financing broker that is well acquainted with the different rates and terms for various types and ages of aircraft, as well as various missions, such as private use, commercial use, or essential use (working aircraft). Buyers often turn to their own bank for aviation finance options, but they may not be the best choice, especially if they aren’t well acquainted with the aircraft financing process and the way their documents need to be prepared for the FAA. Here, we aim to clarify these aspects, while providing invaluable insights to help you navigate the airplane finance industry.
Finance an Aircraft: Exploring Your Options
Factors to consider:
- Rates: Many people focus on rate as the most important factor in aircraft financing. Of course, rate is important and directly affects your payment, but there are many other things to consider.
- Term and amortization: Term, the duration of the loan, is another important factor that will directly influence your monthly loan payment amount. While some banks offer 20-year fixed loans, many do shorter terms, such as 5 years, with longer amortizations of 15 or 20 years. In those cases, a balloon payment will be due at the end of the term, but monthly payments are calculated across the longer amortization period.
- Fees: There may be loan origination fees associated with your loan.
- Pre-payment penalties: Some banks charge penalties for paying off an aircraft loan early.
Several airplane financing options exist for potential buyers, each with unique benefits, and each catering to the specific buyer’s need. These include aircraft term loans, and several types of leases.
Aircraft Loans
The aircraft term loan is one of the most common forms of aircraft financing. With term loans, an aircraft financing company lends money to the buyer, which the borrower pays off along with interest over a pre-determined period (the term of the loan). These loans are similar to mortgages. They involve 15% – 20% down, they have terms of 5-20 years, and amortizations of up to 20 years. These are usually simple interest loans.
Aircraft Leasing
businesses, unless the lease is an operating lease (basically a rental contract). Leases generally offer 5-year terms on a full payout, although it can be possible to get a longer amortization. Leases generally offer 100% financing. Some leases are structured so that the aircraft is returned to the lessor at the end of the lease, while other have a provision for a buyout, transferring ownership to the lessee at the end of the term.
The Aircraft Lenders partners with the leading aircraft loan and aircraft leasing companies to offer competitive loan and lease rates and terms that cater to various uses and durations.
Securing the Best Airplane Financing Rates
Role of The Aircraft Lenders in the Airplane Finance Industry
There are many factors that come into play when determining what down payment, rates and terms may be available to you. The biggest factors are:
1. Your Financials:
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- Cash flow – the amount of income you are showing on your filed Tax Returns
- Liquidity – the amount of liquid assets you have…meaning funds in checking, savings, and investment accounts.
- Debt-to-income ratio – the ratio of your conglomerated monthly debt payments versus your monthly income. Lenders look for a debt-to-income ratio no higher than 40% – 45%
- Credit Score – lenders generally want to see a credit score no lower than 700, sometimes 730, with no late pays or collections within the past two years.
- Borrowing history – lenders also want to see that you have taken out loans at a similar level previously and repaid them in a responsible manner. A higher credit score usually translates to home loans, and the same principle applies to airplane finance. A good credit score signifies lower risk to the lender, potentially leading to more attractive financing rates.
2. Asset Quality
The age and quality of the aircraft also influences the financing rates and terms. Newer aircraft may command better rates or lower down payments. Helicopters, kits, experimental aircraft, and light sport aircraft require higher down payments.
3. Mission
Aircraft mission plays a part in available loan terms. Charter or working aircraft generally require higher down payments.
4. Personal or Business Loans
Rates and terms are often different for personal versus business loans
Role of The Aircraft Lenders in the Airplane Finance Industry
The Aircraft Lenders can help make the dream of aircraft ownership achievable for many. Leveraging their extensive network and knowledge of the aviation finance industry, The Aircraft Lenders can connect borrowers to desirable aircraft funding options. Their loan offerings include aircraft term loans and aircraft leases.
