Investing in an aircraft, whether for personal or professional usage, is a big decision that takes careful budgeting. Financing is a crucial step for a lot of people and businesses, making it easier for them to acquire an airplane. At Aircraft Cash, our speciality is offering customized financing options to support your aspirations in aviation. Whether you want to purchase a small single-engine plane or a large corporate jet, we have flexible solutions to your specific needs. With our expertise, you can navigate the complexities of aircraft financing with confidence and ease.
What is Aircraft Financing?
Similar to getting a mortgage to buy a house or a loan to buy a car, financing an aircraft entails borrowing money to buy it. The lender provides the remaining funds, which are returned over time with interest after the buyer pays a down payment. With the help of this technique, purchasers can more easily manage their finances by spreading out the expense of the aircraft over several years.
Critical Components of Aircraft Financing
- Loan Amount: This is the total sum of money you will have to borrow to buy the plane. Usually, it pays for the entire purchase price less the down payment.
- Down Payment: A down payment is the buyer's advance payment. When financing an airplane, down payments usually vary from 10% to 30% of the aircraft's purchase price, contingent upon the buyer's creditworthiness and the lender's criteria.
- Interest Rate: This represents the percentage cost of borrowing money. A buyer's credit score, the loan's length, and the market's state are some variables that might affect the interest rate on an airplane loan.
- Loan Term: The time frame over which the loan will be returned is known as the loan term. Term lengths for aircraft loans typically range from five to twenty years. Lower monthly payments and higher interest throughout the course of the loan are typically associated with longer terms.
- Collateral: The aircraft itself is typically used as security for the loan. The lender may repossess the aircraft if the borrower defaults on the loan.
Steps in the Aircraft Financing Process
1. Pre-Approval
The first step is getting pre-approved for financing. This involves submitting a loan application and providing financial information, such as tax returns, income statements, and credit history. Pre-approval gives you a clear understanding of your budget and the loan terms for which you qualify.
2. Selecting the Aircraft
Once pre-approved, you can start shopping for the right aircraft. Consider factors such as the aircraft's age, condition, maintenance history, and resale value. Your lender may have specific requirements or restrictions on the types of aircraft they finance.
3. Valuation and Inspection
Before finalizing the loan, the lender will require a valuation and inspection of the aircraft to determine its market value and condition. This step ensures that the aircraft is worth the amount being financed.
4. Loan Approval and Documentation
The lender will finalize the loan approval once the aircraft passes inspection. The promissory note, security agreement, and loan agreement represent some of the paperwork you must sign. The terms of the loan, the repayment plan, and the lender's rights in the event of default are all outlined in these documents.
5. Closing and Funding
The final step is the loan closing, where all documents are signed and the funds are disbursed. The lender pays the seller, and you take ownership of the aircraft. The loan repayment schedule begins, and you will start making regular payments according to the agreed terms.
Factors Affecting Aircraft Financing
Credit Score
A higher credit score can lead to better loan terms, including lower interest rates. Lenders use your credit score to assess your creditworthiness and ability to repay the loan.
Aircraft Type and Age
Due to their higher resale values and cheaper maintenance costs, newer aircraft typically provide better financing choices than older models. Compared to smaller aircraft, certain aircraft types—like jets—may have different financing possibilities.
Loan Amount and Term
Your monthly payment and the total amount of interest you pay during the loan's life will depend on how much you borrow and how long the loan term is. Reduced monthly payments but higher interest is associated with more extended periods.
Down Payment
A larger down payment reduces the loan amount, which can result in lower monthly payments and a shorter loan term. It also shows the lender that you are financially invested in the purchase.
Conclusion
Aircraft financing is a practical solution for individuals and companies looking to acquire an aircraft without paying the total price upfront. By understanding the different financing options and the steps involved in the process, you can make informed decisions that align with your financial goals. Our goal at Aircraft Cash is to guide you through the challenges of financing an aircraft and help you identify the best option for your requirements. Our knowledgeable staff is here to help you every step of the journey, whether you are buying your first plane or expanding your fleet. Contact us today to get started!