Aircraft Financing Explained: The 4 Key Questions Every Buyer Must Answer

From credit and cash flow to aircraft type and pilot experience, here’s how lenders evaluate both you and the airplane before approving a loan.

The four main questions to ask about aircraft financing are: What does the process look like? What are the general financial requirements? What are the aircraft requirements? And what are the pilot requirements?

The General Process

Aircraft financing is different than auto or mortgage financing. This is partly due to the size of the aircraft market. For example, if one of the major auto manufacturers delivered only 2,000 units in a year, they would quickly go out of business. Conversely, if an aircraft manufacturer delivered 2,000 aircraft in a single year, it would be a stellar year. Aviation’s small market size affects lending practices.

Where home and auto lenders leverage volume to streamline the process and spread out risk, aircraft lenders are generally required to look more closely at each transaction to account for the perceived risk in a small, niche market. That’s why the process will often include a detailed financial review, as well as an examination of the aircraft, its registration, airworthiness documentation, and its current market value, before a decision is made. When it comes to closing, an escrow company will be involved to make sure all documentation is correctly filed with the FAA, and the transfer of funds is handled appropriately. The closing process for an aircraft loan is similar to that of a mortgage, although it normally doesn’t take as long.

Financial Requirements

While the specific financial requirements vary across lenders and aircraft types, the main focal points are income, liquidity, and credit.  Lenders typically focus on the Debt-to-Income ratio as a measurement of income. They need to see evidence that there is sufficient income to cover existing debt payments, the new aircraft loan payment, and ownership costs such as hangar/tie down space, insurance, fuel, and maintenance reserves. Your level of liquidity indicates your ability to cover the down payment, as well as unexpected maintenance or repairs. Most lenders define liquidity as cash in a bank account or a non-retirement investment account (for those not of retirement age). Your credit should be robust with a history free of delinquencies. Aircraft financing is often difficult for those looking to build or rebuild their credit.

Aircraft Requirements

This often catches people by surprise. They figure if they’re pre-approved by a lender and have insurance, then what difference does it make what airplane they wish to buy? Lenders treat aircraft differently based upon the type, number of engines, damage history, and quality/completeness of the logbooks.

Lenders approach loans for experimental aircraft differently than certificated aircraft (think Lancair vs. Beechcraft). Expect the possibility of a different rate, down payment, term, and amortization with an experimental or rare aircraft.  

Also, the twin-engine market tends to be volatile, which means some lenders won’t even finance multi-engine aircraft. Others will, but with different rates, terms, and down payment requirements compared to single-engine planes.

Pilot Requirements

Lenders know that pilots commonly purchase aircraft either to upgrade as their mission changes, or to get out of renting, or even to learn how to fly in the first place. In fact, over half of the members AOPA Finance assists are first-time buyers. And a significant number who use our help to purchase don’t yet have their pilot licenses.

This is why it’s essential that lenders clearly understand what your qualifications are. For instance, a low-time, first-time buyer looking for a simple, fixed-gear, single-engine aircraft will have more lending options than a similar pilot looking to buy a high-performance turboprop as their first aircraft. From the lender’s perspective, it makes better sense if the pilot is upgrading from simpler to more complex aircraft ownership in a measured, logical way.

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.