Consider a flexible aviation loan for your next aircraft purchase

Traditional aircraft loans are secured by an aircraft; that’s what buyers are used to. But, a flexible aviation loan may be a better option for you. Before you make that decision, you need to know the differences.

It’s quite simple. All loans are either collateralized or not. A collateralized loan means the bank, finance company, or individual loaning you money ties the loan to some sort of property—a house, a piece of personal property, or a car, for example. Typically a collateralized loan specifies that you use that money for a predetermined purchase—or in the case of an airplane purchase, for a specific airplane with a specific usage. It also means that the lender files a lien on the property with some public entity. Some of these liens can be in the form of a Uniform Commercial Code (UCC) filed with a locality and state, a real estate mortgage filed with a registry of deeds, or an aircraft loan filed with the FAA.

Loans made without consideration to collateral are based solely on your ability to pay the money back. Because you are being given a lump sum of money, you are able to use the funds as you need.

Again, in the case of an airplane purchase, you may use the loan to purchase any airplane you wish without limitation to age or usage. In fact, you could use the loan for engine overhauls, flight training, hangars, a panel upgrade, new paint, etc. This gives you a large range of flexibility when it comes to finding the perfect airplane, upgrade, training, or other aviation need.

To get a flexible aviation loan, all you have to show is your income and other debt obligations. The only question to answer is, "Can you afford to pay this money back?"

AOPA Aviation Finance advises this flexible loan program may be attractive in another way. AOPA Aviation Finance President Adam Meredith explained that by structuring a loan with shorter terms, these loans are actually more economical. According to Meredith, “It’s all about amortization—what drives the total interest amount paid is how quickly you pay back the loan. That’s a much bigger factor than the interest rate.”

Most people are familiar with the popularity of a 15-year mortgage versus a 30-year mortgage. Meredith gives the example of having a $200,000 mortgage at 3.5 percent. The difference between paying this $200,000 loan back in 15 years versus 30 years is paying a whopping $123,000 in interest for the 30-year and $57,000 in interest for the 15-year.

Another advantage to shorter payment periods is that with using longer terms, aircraft can depreciate more quickly than the loan is being reduced. This can be a problem if you wanted to sell the aircraft after only a few years. You could actually need to come up with cash at the closing.

Meredith said that these flexible loans range from 24 months to 84 months. Remember that the interest rate is important, but the amortization (the period over which you’re paying back principal on the loan) is far more important. This flexible loan option makes your loan a one-stop shop. If you want to buy an airplane and upgrade the panel or even finance taxes, you’d have to go to multiple places. AOPA Aviation Finance can help get you a flexible loan, where you can get it all in one place.

These loans carry no prepayment penalty after the loan is six months old. To make a flexible loan right for you, it’s best to pay as much as you can afford on a monthly basis. Meredith adds, “The more you make in payments, the better off you’ll be.” 

The power of shortened amortization: Why less is more and more is less

The goal of AOPA Aviation Finance is to make it easy for AOPA members to finance their airplanes and save them as much in interest as possible. The company's experienced team of aviation-savvy loan experts is ready to discuss your unique situation. Visit www.aopafinance.com to fill out a quick form online and get the process started. Or call AOPA Aviation Finance directly at 1-800/62-PLANE (75263) to determine which loan works best for you.