How Aircraft Financing Works in Canada

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aircraft financing

Aircraft financing is one of the least popular financing options in Canada. If you are a pilot, there comes the point in your life where you will probably have to make a decision – should I continue flying commercially? Or invest in one of my own aircraft?

Or perhaps you’d like to continue flying commercially but also have your own aircraft for pleasure purposes. Or maybe you’re simply wondering how airlines finance their new crafts?

Either way, deciding to purchase an aircraft is a huge financial decision. And most people can’t afford to (or choose not to) finance an aircraft independently. For this reason, they turn to aircraft financing.

Let’s take a closer look at how aircraft financing works and some important terms that you should know if you are considering using it. 

The difference between Aviation Financing and other types of Financing

The main difference between Aviation financing and traditional financing for something like a vehicle is the price. Because of the size and function of an aircraft, they typically cost much more than other vehicle types.

Ultralight Aircraft, or single-seat/single-engine aircraft, generally start around $8000. From there, planes that hold two or more people only increase in price.

The average single-engine place costs between $15 000 and $100 000, and if you wish to purchase a multi-engine plane, you’re looking at upwards of $300 000. Commercial aircraft can cost millions of dollars. 

So while some banks do provide financing for aviation, others won’t. For this reason, many people reach out to aviation finance specialists.

This brings us to the concept that you can use two different types of lenders for an aviation loan: aviation specialists who deal purely with aviation loans, and general lenders who offer many different loan types. 

What can you use an Aviation Loan for?

We speak above about the costs of regular aircraft and planes, but the reality is there are many different types of aircraft you can use your loan for. In addition to planes, you can also use an aviation loan to purchase helicopters, personal jets, amphibious planes, and even unpowered aircraft like gliders. 

In addition to the actual purchase of your aircraft, you can also use an aviation loan for other things like inspection fees, taxes, and other fees related to the purchase of your aircraft. Equipment, maintenance fees, and operational costs can all be covered by your loan as well. 

Terms of Aviation Loans

It should come as no surprise that the terms of your loan will greatly depend on who you obtain your loan from. But many other things can also affect the terms of your loan.

The age, make, and model of your aircraft can all impact the terms of your loan. The ownership history can also impact it, the equipment installed, and the intended usage of the aircraft. 

As a borrower, the lender will want to know whether the aircraft you are buying is for private or commercial use and will want to have proof of employment (as well as your income level). Your credit and tax history, assets, and other debts will also impact the loan terms. 

Down Payments, Term Length, and Interest Rates

Down Payments

Most aviation specialists or lenders will require you to place a down payment on your loan. The exact expectations of the amount will vary from lender to lender but will generally range between 10%-20%.

Typically, you should expect to have to put a 15-20% down payment on your aviation loan. With that being said, this expectation can vary depending upon your credit score.

If you have an excellent credit score, some lenders may accept payments as low as 10%. If you have a poor credit score, you might expect to have to put down a larger down payment. 

Term Length

The duration of aviation loans can range greatly depending on the lender. Some aviation loan terms are as short as five years, while others can be upwards of 20 years.

You should generally expect personal loans to be shorter than loans from aviation specialists, as personal loans generally cap out around 7 years. 

You should expect to pay back your loans monthly, with the exact monthly payment depending on the borrowed amount and the length of the loan term. 

Interest rates

Again, interest rates can vary significantly from situation to situation and lender to lender. It will also heavily depend on your financial situation and credit score. Lower credit scores generally mean that your interest rate will be higher.

Higher interest rates are also usually followed by shorter terms and smaller down payments. Be sure to speak to your lender to discuss interest rates before signing any agreements. 

The average interest rate varies between 3.5% to 7%, but if you are considered high risk based on your credit score, you might expect interest rates upwards of 20-30%. 

What is a Secured Loan?

Aviation loans are almost always secured. Secured loans are often used for larger loan amounts, such as those required to purchase an aircraft. When a loan is secured, it means it is secured against your assets.

In other words, your assets are put up as collateral if you fail to repay your loans. If this happens, the lender has the right to seize whatever it is that you put up for collateral (your house, your vehicle, etc.). 

Other costs that you need to consider when purchasing an Aircraft

Purchasing an aircraft can be expensive, but maintaining and using it can be just as expensive too. For this reason, you must consider all costs associated with owning an aircraft before you make an investment.

You want to be sure that you will be able to afford your loan payments, as well as the payments to maintain, use, and upkeep your craft. 

Ongoing expenses that you should consider when purchasing an aircraft include maintenance fees, operation costs, fuel, repair costs if something goes wrong, landing fees, tie-down fees, and licensing registration, and insurance fees. 

4 Steps to Owning your First Aircraft

Okay, so those are the basics of obtaining an aircraft loan. Now let’s put it all together. Here are the four simple steps you must take to purchase your first aircraft!

Step 1: Take the time to budget

Purchasing an aircraft isn’t a small decision, and you shouldn’t make the purchase unless you are sure you can afford to do so. So before you make a move, take some time to understand your financial situation.

It’s important that you consider your financial situation right now, as well as how your financial situation may change in the future. Is there a possibility of losing your source of income?

If so, how will you make your payments? If you need to, speak to a financial professional to go over your finances to determine if an aircraft loan is feasible for you. 

Step 2: Apply for your loan

Once you are confident that you have the financial means to afford your aircraft, it’s then time to start searching for a lender. Don’t rush this process.

Try different banks and financial institutions, as well as different aircraft financing specialists. Each company is in competition with the next, so watch for deals that they put on the table.

Don’t be afraid to take your time and shop around until you are pleased with the loan terms and agreements. 

Step 3: Negotiate

Who said you can’t negotiate a loan? Different lenders will often offer various terms and agreements, and some are willing to bargain to get your business (yes, even though they are loaning you the money, it’s still a business for them too).

So be sure to discuss your options regarding monthly fees, interest rates, and length of the term until you are happy with the agreement. 

You can also negotiate the price of your aircraft. Be sure to do your research to understand aircraft valuations so that you don’t get ripped off, and read the sales and purchase agreement carefully to ensure that you are getting the most out of your money.

Step 4: Close the sale

After you’ve been approved, selected your aircraft, and negotiated your prices, now it’s time to close the sale. Make sure you have copies of the bill of sale, application for registration, security agreement, and all loan documents.

You’ll also need to ensure that the title has been cleared, the aircraft has been inspected, the aircraft records are up to date, and your insurance is ready to go.

Once you have all of these things in line, there’s only one thing left to do – get out there and enjoy your new craft!

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.