There are some members who prefer to avoid paying over time as well as taking on the added burden of interest payments. Being a cash buyer is an enviable position to be in, but it may be worth it for a cash buyer to consider the benefits of taking on some debt when buying an airplane.
Typically, lenders require a minimum of 15% down for a single engine plane, and 20% down for a multi-engine aircraft. So, for example, rather than pay cash, if a cash buyer with $500,000 to spend decided instead to only put down $100,000, and hold back $400,000 in reserve, he or she could acquire an airplane worth almost $670,000 through financing. Alternatively, if that same pilot only wanted to put down half—$250,000 rather than the full purchase price —he or she would be in a position to acquire an airplane worth over a million dollars,.
On the one hand, paying cash for a $500,000 airplane could be smart money management. No debt, no interest. Good deal. But, if that $500,000 was most of a person’s capital on hand, the pilot will need to figure out how to cover all maintenance and operational costs, both fixed and variable.
On the other hand, opting to finance allows the buyer to spend the same amount of money or more but over time. And over that time, by paying it out through monthly payments, two benefits accrue. The first is the reserve itself, to cover the cost of regular and unscheduled maintenance that inevitably occurs with aircraft ownership. The second is the ability to earn interest on that capital in reserve. A third benefit could include tax benefits. We advise that you consult with your own tax professional to better understand the options available for your specific situation.
Bottom line, a healthy consideration of judicious capital expenditure regarding your airplane purchase could create an opportunity to earn money on held-back capital reserves, possibly take advantage of some tax benefits, and acquire an airplane that flies higher, faster, and farther, and carries more payload versus one purchased with a lump sum of cash. For many of our members, these attributes are exactly what they are looking for in an airplane.
Great advice. Great rates. Helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying or refinancing an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.
