When pilots are looking to purchase and finance a light jet, several key questions often arise. Here's a list of the top five questions asked.
1. What is the total cost of owning a light jet?
The cost of owning a jet is not a one-time event. The cost is spread out over the time you own the aircraft, and heavily influenced by how much you use the aircraft. Aircraft ownership costs typically fall into one of two categories: Fixed Costs and Variable Costs.
Fixed costs would include things like the purchase price (down payment plus monthly payment for the length of ownership), insurance, and hangar/storage costs.
Variable costs would include things like maintenance reserves, engine reserves, repairs, inspections, fuel, oil, and any other cost directly driven by the operation of the aircraft. In many cases, lenders will require engine and maintenance programs to be in place for the aircraft, which can help streamline some of these variable costs into a simple hourly cost for operation.
The more you fly, the lower the fixed costs are per hour, but the total of the variable costs will increase. AOPA’s Operating Cost Calculator is a great resource to better understand these costs and help you estimate the total annual cost of ownership.
2. What are my financing options for a light jet purchase?
For traditional financing, otherwise known as a fully underwritten loan, the lender will want to look at a complete set of financials for the buyer. The buyer must be able to personally guarantee that the loan will be satisfied. That means the lender will want to assess personal credit, income, liquidity, as well as business interests and any other financial information that will help you meet their qualifications. AOPA Finance will gather this information up front to identify the lender that will best fit your situation.
If you’re buying as a partnership, many lenders will require each partner to qualify individually for the full loan amount.
If you are purchasing the aircraft specifically for business, or registering the aircraft to a business, that business is going to need to provide a guarantee on the loan, so lenders will be underwriting the business as well as the individual for the loan.
Another option would be an asset-based loan. Asset-based loans focus more on the current and residual value of the aircraft being purchased and not so much on the financials of the acquiring individual/partnership or business entity.
Because there is less financial underwriting with asset-based loans, lenders that offer this type of financing often have limitations on the types of aircraft they will finance and the ownership structures they will allow. If you meet the lender’s criteria, the limited financial disclosure required often means faster processing for the loan, which will save you time and effort.
Having a conversation with AOPA Finance will help identify the best options available to you.
3. What do the loan term, down payment, and rate look like for a light jet purchase?
In most cases, lenders financing jets typically offer a 15-year amortization, with a five-year term. That means you'll have a balloon payment in five years. This structure is very common for jets because it fits well with the depreciation schedule used by businesses. If you anticipate keeping the aircraft for more than five years, there are lenders that can offer longer terms based on your qualifications and the details of the transaction.
Down payments for traditional financing are between 15% and 20%. If you are looking for an asset-based loan, down payments between 30% and 40% are common. Interest rates vary and are often based on aircraft and usage specifics, so it’s best to give AOPA Finance a call to get the details of what is currently available.
4. What is the resale value or depreciation rate of a light jet?
Resale value is difficult to predict accurately; however, looking at historical numbers can help identify trendlines that will indicate expected values. Depreciation curves do vary across different types of aircraft, and there are some aircraft that consistently perform well in the secondary market. The two key points to consider when purchasing a jet are: do not overbuy up front and do not over-finance the aircraft. If you understand both the aircraft’s value to you and its value to the market, you are more likely to get a good price upfront. When it comes to financing, making more than the minimum down payment or avoiding an unnecessarily long amortization will help keep your equity in the aircraft within a standard range of the market. If you follow both points, you are likely to have negotiation room when you sell.
5. Should I hire a broker to help with the financing?
AOPA Finance highly recommends hiring a broker. The main benefit of working with a broker is the experience and the connections a broker has in the industry. Working with a broker such as AOPA Finance can shorten transaction times significantly. We know, for example, where to look within the financing industry to find a lender that can meet your needs.
Great advice. Great rates. Helpful and responsive reps you can trust. Three good reasons to turn to AOPA 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.
