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Prospective aircraft buyer Jane F. Law learned early the importance of careful research. She had her heart broken by a Pitts S-IS that seemed the perfect airplane until she realized that the 150-horsepower Lycoming had 1,500 stressful aerobatic hours on it. The impending need for an overhaul made the airplane too expensive for her checkbook. She reluctantly decided not to purchase the Pitts, but all the preparation was not wasted. She now knows just how much the bank will loan her, and she has completed all the applications for a loan. The money is there; the only task left is to find the right airplane on which to spend it.
Though 24-year-old Law brims with self-confidence, she admits that the thought of financing an airplane left her a bit nervous. Fortunately, several experienced friends agreed to usher her through the process.
Like about half of all prospective aircraft purchasers, Law estimated what she could afford and then sought an airplane that met her needs and her budget. Once she found the Pitts, she went to the bank to find out if she could actually afford it. The alternative is to first get "pre-qualified" by a lender. In that case, you confess to the loan officer at the bank or finance company your income and expenses and other relevant financial information, and they tell you how much you can afford to spend. You then shop for an aircraft within your budget.
Law figured a Pitts was out of her price range, but she spotted an S-1S in the used-airplane-shopper's guide — Trade-A-Plane — that was within her budget. She made several calls to the owner, who sent her photographs of the airplane. Though she had never seen the Pitts in person, she became convinced it was the one for her. Next, she had to find out if she could really afford it. She contacted a bank with experience in financing aircraft.
The $20,000 she was approved for is about 75 percent of the $27,500 the owner was asking for the Pitts. Usually, lenders in the aircraft financing business will finance 80 to 90 percent of the total purchase price or, in many cases, the low wholesale value, whichever is less, as determined by the Aircraft Bluebook-Price Digest. In determining the value, the lenders take into account the age and condition of the aircraft, time remaining before overhaul, and equipment on board. To most lenders, however, the important issue is the ability of the buyer to pay, not the aircraft value.
In determining whether to lend Law the money, the bank evaluated the financial information she provided. The loan officer helped her fill out the loan application form and financial statement that are designed to determine the purchaser's net worth. Assets and liabilities are evaluated, a debt-to-income ratio is established, and a credit check is conducted.
The bank also reviewed the photographs of the airplane and had a title search conducted. The loan officer was provided a Bill of Sale from the seller. Less than 24 hours after completing the paperwork, the bank was able to approve the loan. Law had an insurance company write a policy covering the Pitts and had a copy of the certificate of insurance faxed to the bank.
Though she eventually backed out of the deal, the process Law went through is typical, particularly for smaller loans. Sometimes when financing a more expensive aircraft, a lender will require a pre-purchase inspection, and some buyers and sellers prefer to have the funds placed in an escrow account until both parties are satisfied that the deal is complete.
AOPA thanks our members for their continued support in protecting the freedom to fly.