Aviation, Airplane and Helicopter Loans

Quick Links

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• What is an Aviation Loan?
• Uses for an Aviation Loan
• Typical Terms of an Aviation Loan
• Other Factors to Consider
• The Legalities of Owning an Aircraft in Canada
• Frequently Asked Questions About Aviation Loans

What is an Aviation Loan?

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An aviation loan is exactly what it sounds like - a loan with the express purpose of buying an aircraft (of any kind). These loans are almost always secured against the aircraft being purchased. Lenders come in two varieties: specialists who only offer aviation loans, and general lenders who offer loans of many kinds. The rates and loan terms you qualify for will vary by lender, so it's good to compare offerings from both types to find the most cost-effective option for you.

Uses for an Aviation Loan

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Although it may seem self-explanatory that an aviation loan is used to buy an aircraft, this is not as restrictive as you may think. Firstly, there are the different kinds of aircraft that you may be interested in:

• Unpowered aircraft (like gliders)
• Light aircraft
• Single engine aircraft
• Amphibious planes
• Business jets

• Personal jets
• Helicopters
• Commercial airliners
• Cargo planes
• Other aircraft

The size, passenger capacity, number and type of engines, and intended use all factor into deciding which aircraft is right for your needs. Then, as well as the aircraft itself, aviation loans can be used for associated costs, such as:

• Purchase-related fees, such as inspection fees and taxes
• Additional equipment

• Maintenance fees
• Operational costs

Typical Terms of an Aviation Loan

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Loan Amount

Aircraft vary in price quite a bit.

• Light aircraft can range from $8,000 to $25,000.

• Larger commercial aircraft range from $100,000 to many millions.

So there's really no such thing as an "average" price of an aircraft, and the loan amount all depends on what you're in the market for.Many aviation lenders do not focus on very small aircraft purchases, and so tend to have a minimum borrowing amount of $50,000. Less can sometimes be borrowed through these lenders, but usually at a higher rate or on a shorter loan term.

Non-specialized lenders have lower limits. For someone looking to finance their private aircraft through a personal loan, it's important to know that most personal loans cap out at $35,000, although up to $100,000 is possible in exceptional circumstances.Lastly, corporate loans for the purchase or aircraft are possible; these are much bigger loans, starting with a minimum borrowing amount of $750,000, and are only available to large businesses.The value of the aircraft you are buying may well dictate which loans and lenders you qualify for, so make sure you know which aircraft you're interested in before seeking out a loan.[/vc_cta]

Downpayment

Typically, a downpayment of 15% to 20% of the aircraft's value is required for an aviation loan. If you have excellent credit, you may be able to get this level down to 10% with some providers. The bigger the downpayment you have, the better terms you can get. If using a personal loan to purchase your aircraft, the size of the downpayment will be based on your personal circumstances and the lender you go with.

Loan Term

The lifetime of an aviation loan can be as short as 5 years, or as long as 20, depending on your circumstances and loan amount. Personal loans used to purchase a private aircraft have shorter terms, often maxing out at 7 years.

Interest Rate

The interest rate you qualify for is heavily dependent on your financial circumstances and the loan term. Most aviation loan providers require a minimum credit score of 700 to consider a private buyer's application; if you pass this threshold, you can expect interest rates in the range of 5% to 8%. Rates will be higher for shorter term loans, lower credit scores, or smaller downpayments.

Payment Schedule

Most aviation loans have a monthly payment schedule, which consists of the principal plus interest on the loan. It's important to know this monthly amount in advance, as for private buyers, many aviation loan providers will not only require a minimum downpayment at time of purchase, but will also need to see proof that you have at least 18 months of loan payments available in liquid assets.

Factors That Affect Loan Terms

Details regarding the aircraft and the borrower will affect loan eligibility and cost.In terms of the aircraft, the lender will want to know:

• Age
• Make
• Model
• Intended usage (purpose and amount)
• History of the aircraft's ownership, use, damage and maintenance
• Details on installed avionics equipment

In terms of the borrower, the following is important:

• Private or commercial
• Size of downpayment
• Income level (personal if a private purchase, business income if a commercial purchase)
• Loan amount being sought
• Credit history (personal or business)
• Tax history (for larger loans)
• Other debts/assets

Other Factors to Consider

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Leasing

Aviation specialists recommend that if you're not spending at least 240 hours a year in your plane, then the purchase price plus operating costs are probably not worth it. If you're unsure whether to commit to an outright purchase, you can lease a private or commercial aircraft instead. All aircraft leases are regulated in Canada to ensure consumer protection, and leasing will save you money both initially and on maintenance costs. However you will not own the aircraft.

Buying Used vs. New

Aircraft depreciate faster than almost any other type of vehicle, so it's worth considering purchasing a used one to save yourself some money - up to 90% in some cases. However, used aircraft won't come with a warranty, and will have higher maintenance costs.

When buying a used aircraft, a pre-purchase inspection is crucial. This inspection can identify any underlying issues, and then this information can be used when negotiating price. If the issue is major enough, it may even cause you to walk away from the purchase. Aircraft repairs are expensive, so an inspection is key to avoiding unnecessary and unforeseen financial problems down the road.

Ongoing Costs

Running an aircraft comes with many responsibilities, and these must be calculated ahead of time to ensure you can afford your aircraft. Ongoing expenses include:

• Maintenance costs (including Time Between Overhaul, a mandatory maintenance operation required at set intervals and costing a percentage of the value of the aircraft)
• Repair costs
• Hangar or tie-down costs
• Fuel and oil
• Engine reserves
• Landing fees
• Insurance
• Title insurance
• Licensing and registration

The Legalities of Owning an Aircraft in Canada

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Lastly, it's important to understand that regardless of the type of aircraft you buy and its intended use, there are regulations you must follow. These regulations are known as the Canadian Aviation Regulations (CAR) and they cover all civil aviation in the country. Full details of these regulations can be found here. What rules apply to you will depend on your province and your aircraft type and its use, and relate to everything from licensing requirements to operational parameters.

Frequently Asked Questions About Aviation Loans

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How much can I borrow with an aviation loan?

Aviation loans typically start at $50,000 and can extend to $750,000 and beyond. The amount you can borrow depends on your company's financial circumstances, needs, aircraft being bought, downpayment size, and other related factors. If using a personal loan to purchase a private aircraft, the typical limit is $35,000.

What kind of aircraft can I buy with an aviation loan?

Aircraft of any kind can be bought with an aviation loan, though it is worth noting that the older or more bespoke the aircraft, the harder it will be to get loan approval. Loans are typically secured against the aircraft in question, so resale potential is an important consideration for the lender.

Can I use an aviation loan for anything but aircraft purchase?

Aviation loans can be used for any expense related to your aircraft, including equipment, costs associated with purchase, and repair costs.

Can I use an aviation loan to purchase a fleet of aircraft?

Yes, it is possible for businesses to secure a loan to finance a fleet of aircraft. The amount you can borrow and the number of aircraft you can buy will depend on your company's financial circumstances and expected revenue.

What are the standard terms of an aviation loan?

Aviation loans vary widely depending on the borrower and the aircraft being purchased. Generally, loan terms extend from 5 to 20 years. Typical APRs are in the 5% to 8% range. Downpayments need to be 15% to 20% of the aircraft's value. Most borrowers need to have a minimum credit score of 700.

Do I need good credit to get an aviation loan?

A good credit score is a common eligibility requirement for an aviation loan, with many lenders requiring a score of at least 700. However, this prerequisite can be circumvented by extenuating circumstances, such as a larger than average downpayment, or by pursuing financing through a personal loan where the terms are less stringent.

How much does it cost to own a plane?

The cost of owning a plane consists of initial expenses, such as the purchase price of the plane and associated fees, and ongoing expenses, such as maintenance, fuel, hangar costs, insurance, and so on. The scale of both of these sets of costs depend entirely on the type of aircraft and how much it is used.

How much does an aviation loan cost?

An aviation loan from a dedicated lender usually has an interest rate of 5% to 8%; each lender may also have fees, such as an origination fee, an application fee, a valuation fee, or early payment fees. The exact cost of your loan will depend on these factors, as well as the term of the loan.

Written By Smarter Loans Staff

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