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Aircraft Loan Considerations

Provided by AirFleet Capital - IFA's Aircraft Finance Partner

Aircraft financing typically draws comparison to voodoo magic at a committee level - some group of bankers in the back of an office sitting around a table diving through the credit report and financials amidst discussions about their golf game. This couldn't be further from the truth - an aircraft loan is typically a hybrid of the underwriting used for an auto loan and a home loan. Aircraft loan underwriting has the speed more in line with an auto loan (typically 2-3 business days), but requires income verification such as with a home mortgage (gone are the days of the no-doc home mortgages!).

Beyond the underwriting, there are a number of elements that impact the rates and terms available for a particular aircraft loan. Below are some of the factors you may wish to consider:

a. Down-payment: larger down-payment typically provides a lower interest rate.

b. Larger Loan = lower rate: traditionally, as the loan amount increases, the costs of writing the loan are spread over a larger total yield, which would provide a lower rate (consider the underwriting involved for a $25,000 loan versus a $125,000 loan - typically the same workload).

c. Keep it Simple: more complicated structures or group financing will typically cost more to underwrite and document.

d. Age of the aircraft doesn't always rule out a loan, but will impact the rate and term (i.e. think of a loan on a 1968 Jetstar and the additional collateral risk that may be implied on this older jet).

e. Fixed or Variable Rate: When rates are decreasing, there's a significant attraction to variable rates, but long-term fixed rates still offer the best bang for your buck if you plan to keep the aircraft for 3 or more years.

Rates and terms are also impacted based on the type of equipment a client is buying. Particularly, you may see different rates and terms for the following aircraft categories:

1. Part 23 (normally certified aircraft) piston singles & twins
2. Turboprop and Jet aircraft
3. Helicopters
4. Light Sport Aircraft

Keep these elements in mind when shopping for aircraft financing, as each of these variables will impact the rates and terms offered by the lender, or even the lender's ability to offer a financing solution.

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