With so many great new and used aircraft available – and some very good buys too – how can you secure the best loan for your aircraft purchase?
These three tips can help:
Carefully Consider Your Aircraft Selection
With all the aircraft choices available to you, be mindful that lenders prefer certain aircraft models over others. This doesn’t mean that the airplane models lenders find less desirable are unsafe or inefficient, it’s simply that they are looking for qualities such as an aircraft’s utility and resale value. For example, the PC-12 and CJ3 are aircraft that lenders especially like. With so much utilitarian value in, and such a robust secondary market for these aircraft, lenders are eager to finance them. When shopping for your aircraft, you can refer to pricing digests like Vref or Aircraft Bluebook for resale values to determine which airplanes rank highest.
Lenders often prefer to finance more expensive aircraft, yielding more interest for them and slightly better terms for you.
When considering a turboprop, choose a model that’s in production, or which has a variant currently in production. That way, there’s both a reliable supply of parts and a healthy secondary market. Conversely, if the aircraft is no longer being made, parts and maintenance service can be a challenge, significantly increasing the cost of ownership.
Be Flexible in Structuring Your Terms
If you are able to provide a larger-than-usual down payment, or to pay a larger monthly payment, you are more likely to get advantageous terms, and of course, you’ll also spend less in interest. The single most important force that drives interest rates is the length of the term of the loan. The least expensive option is a floating rate, also known as an adjustable rate. If you are willing to bear the risk of an interest rate increase, a floating rate may be your best option.
If you are risk averse, however, take a hard and realistic look at how long you plan to keep the aircraft. Then give yourself an extra 12 months to cover the unforeseen, and target a fixed rate loan for that term. Should you then be able to pay down the loan over a shorter period, often this too will get you a better interest rate. Instead of trying to get 20 years amortization, if you can afford payments on a 10-year schedule, not only can you typically expect a lower rate, but also you save in interest. Just be sure that the loan you choose does not have a pre-payment penalty.
Employ the Services of An Aircraft Finance Broker
Since the market is changing all the time, a competent, experienced broker will keep up with trends, rates, and new approaches to financing. Aircraft buyers who have a pre-existing relationship with their banker might be tempted to seek a loan from him or her, and often there is some benefit to doing so. However, financing this purchase may be different, with different challenges, and different options may now be available. (See “Mind The Gaps,” BAA, Sept/Oct 2015).
An aircraft finance broker can provide multiple solutions for your loan. If you go directly to the lender, you might get a good deal, but you may be limiting your options. Think of an ice cream store that sells only vanilla and chocolate. If you use a broker, you get all 31 flavors: you’ll be able to learn what many lenders are offering.
Since aircraft finance brokers tend to see more volume and a broader range of transactions, they have a better idea what the landscape looks like and therefore can provide a variety of choices for the savvy buyer who is looking to finance an aircraft. BAA
Adam Meredith, President of AOPA Aviation Finance, connects owners and pilots with aircraft finance lenders. With more than 15 years’ experience in the finance industry, he holds both an MBA and an MS in Finance.