Adam Answers 2018 Year in Review

As another year comes to a close, AOPA Aviation Finance would like to continue our tradition of reflecting on some of our favorite "Adam Answers" questions of the year. 
AOPA Aviation Finance

Question: I have been looking at several Bonanzas, but every time I start negotiations with the seller, they opt for cash buyers. Is there something I can do to get the financing in place before I negotiate the sale?

Answer: If you have an age range and purchase price in mind, it would be recommended to get pre-approved. The pre-approval will take care of the credit underwriting so that when you find an aircraft you can confidently make an offer. Closing can be completed within a few days upon signing a purchase agreement if a pre-approval is already in place. Approvals are typically valid for 90 days with the rates locked for the first 30 days. 

Question: Is it possible to prepay my loan?

Answer: Some lenders do have pre-payment penalties but still allow additional principal payments to be made. Typically, the pre-payment penalty is only for the first 24 months of the loan and runs about 1-1.25% of the original loan balance. Additional principal payments can be made during the time that the pre-payment penalty is in place as long as the payments are within the specific lenders’ guidelines. 

Question: My bride and I are planning to retire in early July. We have several RE income streams, but I’ll technically be out of a job. Would it be prudent to ‘upgrade’ our plane before retirement? Or, do most institutions look at overall finances and not just steady employment?

Answer: Major life events, such as retiring, can make financing complicated especially when being done simultaneously. For simplicity purposes, it may make more sense to ‘upgrade’ before retiring. Lenders are going to review the last two years for sufficient cash flow. That being said, I would recommend that you have a good understanding of what your income will be post-retirement. Budgeting for the financing and aircraft operation should be based on retirement “income” and just because you’re retiring doesn’t mean you won’t have cash flow. A common rule of thumb most lenders accept is forecasted “income” equal to 5% of your total marketable securities plus pensions, social security and other investment income like rental real estate and business investments. We have helped many AOPA members in your situation. We would love to talk in more detail about your needs.

Question: I am considering buying a plane in order to finish up my Instrument Rating training. For an approximately $80,000 Cessna 172, I thought of putting down $25,000 as down payment. What is a typical interest rate for the balance $55,000 for a 15 year period?

Answer:  Based on a $55,000 loan amount, you could expect rates between 5.24% and 6%. Over a 15 year term, this equates to a monthly payment of roughly $442. This payment assumes 740+ credit score and personal usage.

If this is your first time financing an aircraft, I would recommend that you check our resource page for First Time Buyers. Here you will find information about preparing your financials, applying for the approval, negotiating the sale and closing on the loan.

In general, for aircraft with a purchase price of $150k or below a greater down payment will not affect the rate. When looking at more complex aircraft, or aircraft with a sales price of $150k or above, a higher down payment to reduce the LTV (loan to value) will have an effect on the interest rate. Another option to reduce the rate on aircraft with a purchase price of $150k plus would be to shorten the loan term and amortization.

Question: I recently had an aviation finance broker (not AOPA btw) review my financials, tell me I had plenty of financial capacity for the plane and amount I wanted to finance, but that I would be denied because the bank could not get at my cash."  In effect, there must have been some unwritten rule (?) about having "bank accessible" cash collateral that nobody talks about when trying to finance a plane.  Is this a "dirty little secret"(?)

Answer: Thanks for the question. Without knowing your exact situation it’s hard to know exactly what the broker was referencing. However, most likely what they mean is the amount of liquidity you have must meet a specific level. Lenders have varying amounts of minimum required liquidity. This can range from none (no minimum liquidity requirement) for some to enough for your down payment plus 18 months of payments thereafter for other lenders. Also, this minimum “liquidity” generally needs to be in the form of “marketable securities” meaning stocks, bonds, mutual funds or cash and it must be held in non-retirement accounts (unless you are of retirement age).

Have questions for Adam? He is happy to answer them. Submit your questions here. Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (75263) or click here to request a quote.

Adam Meredith
Adam Meredith
President of AOPA Aviation Finance Company
Adam Meredith, the longtime president of AOPA Aviation Finance Co., died after a long battle with cancer in December 2023. He is remembered for his passion for helping fellow pilots, leading a team devoted to putting flight training and aircraft ownership within everyone’s reach.

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