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Interest rates are up

What higher rates mean for prospective buyers

The Federal Reserve has been trying to get inflation under control, and we’ve had significant and consistent increases in interest rates recently, which has a direct correlation to what it costs to borrow. Aircraft finance is no more immune to what the Fed does than any other industry.

For years, we’ve had a run of pretty mild interest rates. As such, folks have come to expect this unusual period of low interest rates to be the norm. Over the long term, however, it’s not. Historically speaking, rates are fairly normal right now.

The combination of successive rate hikes is why banks are strictly adhering to any rate lock periods they may grant. While higher rates benefit them, their cost of money is going up, which provides a disincentive for extending rate locks which impacts their core source of income: net interest income.

Aircraft finance is no more immune to what the Fed does than any other industry.Under these economic conditions, AOPA Finance advises that whatever rate you get, make sure you can accept it as the rate you’re going to pay for the life of your loan. Refinancing in the short term when rates might go down isn’t likely an option. If history is any guide, we’re entering a normal phase of the economic cycle, and this phase can last one to two years, not three to six months, which means any significant rate reductions might occur in two to three years.

Bottom line: Rates are going up, which leads to an urgency to do something. People may not be able to get the airplane they want because they’re losing deals to cash buyers. The best thing you can do to protect the rate you’ve locked in is to have your financials and preapprovals, even the targeted aircraft, all configured before approaching a financer for a loan. That means getting your financial and legal houses in order, with all documentation ready. AOPA Finance is here to guide you through that preflight process. [email protected]

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Adam Meredith

Adam Meredith

President of AOPA Aviation Finance Company
Adam Meredith, President of AOPA Aviation Finance Company, is an aircraft finance professional with more than 15 years lending, small business management and customer service experience. Adam is a commercial pilot with multi-engine and instrument ratings.
Aero-Space Reports

Aero Space Reports

Sponsor of Aviation Finance
Aero-Space Reports, a third-generation family-owned business, has been a leader in the aviation title industry for more than 45 years. In that time, they’ve seen tens of thousands of aircraft purchases: They’re all too familiar with what can go wrong, and they know exactly what it takes for things to go right.