As you may already know, aircraft loans are slightly different from other types of loans. Since aircraft are specialty assets, they are subjected to specific laws that many traditional lenders do not understand. There is good news if you are looking to finance your next aircraft purchase. Atlantic Horizon Capital is here to help with our complete guide to financing your aircraft.
The Aircraft Purchase Process
Before applying for a loan, you should know how these transactions differ from other loans. First, the parties will sign a Letter of Intent (LOI) as the buyer places a deposit on the aircraft. The LOI will often contain the basic payment terms and a description of the aircraft. Many parties will use a title company or law firm to act as an escrow agent for the deal.
Remember, many of these sales are purchased on an “as-is” basis. If you are buying an aircraft, it is vital to get an inspection of the asset. Most buyers will arrange an inspection to conduct a mechanical and visual check of the aircraft. If there are any issues with the aircraft, the buyer can request the seller to correct any problems before closing on a sale.
At this time, the escrow agent will search for any lien against the aircraft. If there are any liens, the seller must satisfy them before the sale can proceed. With help from the escrow agent, all the closing documents are prepared and executed.
After that, the parties will attend a closing where the documents are released and filed. Unlike a real estate transaction, these closings are usually handled remotely. Once everything is finalized, the buyer will have possession of the aircraft.
Before you can think about finalizing a deal, you need to find the right financing for your aircraft.
What Are Typical Aircraft Loan Terms?
Certain financial methods are used to qualify borrowers for an aircraft loan. First, you will want to find a reasonable interest rate for your loan. The interest rate will affect the amount of the loan. Most lenders will look at the buyer’s credit score. With these loans, the terms are usually at a fixed-rate basis rather than a variable rate. However, you may still find a variable rate for your aircraft loan.
Down payments are usually required for an aircraft loan. For many business and private aircraft, a typical down payment is around 15%. The lender could reduce the down payment to 10% if you have exceptional credit. The down payment requirement could increase to 30% for those with poor credit. The down payment can even affect your terms. A higher down payment will usually give you a longer term on your loan.
Many times, the amortization period and terms are different lengths. In some situations, balloon payments may be required after a specific time. For example, an aircraft loan with a 20-year term could require a balloon payment after five years. Many newer aircraft will have terms up to 20 years, while older planes may only have loans with 10 to 15-year terms.
As you imagine, all those factors can affect the monthly payment. These loans are similar to a home mortgage. Most of the interest will be paid upfront, meaning you will not gain much equity during the first years. Some loans do not have prepayment penalties, which means you can pay off the loan without any fees.
What Can Affect Your Aircraft Loan and Purchase Price?
The type of aircraft will make a difference in the terms. Some older aircraft do not qualify for the best rates, but those newer models can find the ideal terms. The purchase price is another factor that can directly influence the type of financing. Some loans can be spread out over several years, helping to lower your monthly payments.
Along with that, the installed equipment can affect your terms. The age, quality, and type of installed equipment will influence the purchase price. New avionics could boost the price even if you purchase an older aircraft. On the other hand, outdated and older equipment could lower the aircraft’s price since they will have higher maintenance costs.
All aircraft will have records that show responsiveness to the FAA’s Airworthiness Directives. Also, there should be complete maintenance records for the asset. You will want to examine the craft’s airworthiness certificate, equipment lists, airframe and engine logbooks, flight manual, and weight and balance data. If anything is missing, it needs to be reflected in the sale price of the aircraft.
Finally, the damage history will affect the price of the aircraft. You will want to review the type of incidents and accidents associated with the plane, repair details, and whether there is any major impact on the components. Any pre-purchase inspection will take a close look at the history of the craft to ensure it conforms to all FAA practices and regulations.
The Approval Time and Terms of Aircraft Loans
Many people are accustomed to closing on a car loan in a few hours. That is not the case with an aircraft loan. In many instances, it could take at least a few days to finalize a simple loan. Expect more time to process the loan if you have complex financing terms. Typically, the longest financing term for an aircraft loan is 20 years, but you may only finance older aircraft for 10 years.
Credit Scores and Aircraft Loans
Like most types of loans, the credit score is extremely important. The credit score shows that you will make the payments on time and can help you get a lower interest rate.
Understand the Basics of an Aircraft Loan
Now that you understand these loans better, you can find a provider to give you the best rate and terms. Aircraft loans are different from other loans, and you will want to work with an experienced company to help you choose the right financing option for your next purchase. Contact Atlantic Horizon Capital today if you are ready to apply for an aircraft loan.