How Long Can You Finance an Airplane?

Financing an aircraft represents a significant financial commitment, similar to real estate. While similar to conventional loans, it involves unique considerations specific to aviation. Understanding the various aspects of airplane financing, from typical loan durations to the application process, provides a clearer path for prospective aircraft owners.

Typical Loan Durations for Aircraft

Airplane financing typically ranges between 10 and 20 years. For newer piston-engine aircraft and turboprops, loan terms can extend up to 20 years. Older aircraft, or those with higher airframe and engine hours, generally qualify for shorter terms, often falling into the 10 to 15-year range. Commercial aircraft may also have shorter financing terms due to their higher utilization rates and faster depreciation.

It is also possible to structure loans with a 20-year amortization period but include a balloon payment after a shorter term, such as five years. This structure can result in lower monthly payments during the initial period, with a larger lump sum due at the end of the term or requiring refinancing.

Key Factors Determining Loan Terms

Several factors influence loan terms for an aircraft purchase. The age and type of the aircraft play a significant role, as newer models generally qualify for longer terms and more favorable financing conditions. Aircraft with updated avionics and comprehensive maintenance histories are often viewed more favorably by lenders, potentially leading to better terms. The aircraft’s intended use, whether for personal recreational flying or commercial operations, also impacts lender risk assessment and term offers.

A borrower’s financial standing is a primary consideration, encompassing their credit score, income stability, and debt-to-income (DTI) ratio. Lenders typically look for a strong credit history, often a score of 700 or higher, and a DTI ratio below 46% after including the new aircraft payment.

A substantial down payment can significantly improve loan terms, including potentially extending the loan duration. While a 15% to 20% down payment is common for private aircraft, exceptional credit might allow for a 10% down payment, whereas commercial aircraft may require 20% to 30% down.

Common Types of Airplane Financing

Most airplane acquisitions are financed through secured loans, where the aircraft itself serves as collateral for the debt. The lender holds a legal interest in the aircraft until the loan is repaid, similar to a home mortgage. In case of default, the lender can repossess and sell the aircraft to recover the balance. Collateralization allows for higher loan amounts and more competitive interest rates than unsecured options.

Unsecured loans are rare for the full purchase of an aircraft due to the higher risk they pose to lenders. When available, these loans often come with higher interest rates and more stringent eligibility criteria, being primarily backed by the borrower’s creditworthiness.

An alternative to direct ownership is leasing, which can involve various structures. A “dry lease” provides only the aircraft, with the lessee responsible for maintenance, crew, and insurance, granting them full operational control. In contrast, a “wet lease” includes the aircraft, crew, maintenance, and insurance, with the lessee typically paying based on flight hours. Lease options can also be structured as “sale-leasebacks,” where an owner sells the aircraft to a lessor and then leases it back, providing liquidity while retaining use of the asset.

Preparing for an Aircraft Loan Application

Before applying for an aircraft loan, gather financial documentation. Lenders typically require personal financial statements, two years of federal tax returns (including all schedules), recent pay stubs, and bank or brokerage statements to verify assets and liquidity. For self-employed individuals or business owners, two years of business tax returns and year-to-date financial statements (profit and loss, balance sheet) will also be necessary. These documents provide lenders a comprehensive view of an applicant’s financial health and repayment capacity.

Information about the target aircraft is equally important for the application. This includes the aircraft’s make, model, year, total time on the airframe and engines, and detailed maintenance records. Lenders may require a pre-purchase inspection by an independent third party to assess the aircraft’s condition and value.

Some lenders may consider a pilot’s experience, ratings, and flight hours as part of their risk assessment. Researching and identifying lenders specializing in aircraft financing can streamline the process, as they possess unique expertise in this market.

The Airplane Loan Application Journey

Once all necessary documentation is prepared, the formal loan application journey begins with submission to a chosen lender. This can often be done through online portals, but may also involve direct submission via email, fax, or mail.

Upon receipt, the lender initiates the underwriting process, which involves a thorough review of the applicant’s financial health, the aircraft’s details, and its appraised value. This stage includes credit bureau checks, verification of assets and liabilities, and analysis of income and debt-to-income ratios.

During underwriting, the lender also typically orders an aircraft appraisal and a title search to ensure there are no existing liens or ownership disputes. This comprehensive evaluation helps the lender determine the loan amount, interest rate, and specific terms of the offer.

Following a successful underwriting review, the lender issues an approval letter outlining the proposed terms and any remaining conditions. The final step is closing the loan, which involves signing various legal documents such as the promissory note and aircraft security agreement, followed by the disbursement of funds and the transfer of the aircraft’s title. The entire process, from application to closing, can range from a few days for straightforward cases to several weeks for more complex transactions.