Aircraft financing for general aviation aircraft is unique. Aircraft before 1960 are hard to be financed because they are older. All the aircraft before 1960 would get offers of financing on a case-by-case basis. Aircrafts manufactured on or after 1970 are newer and easier to finance. Older turbo-props and jets are restricted and are difficult to be financed. The question of how does Aircraft Accounting or financing works is very common. The process is unique. And that is the reason this question comes to mind frequently. The components financed in aircraft are sample aircraft, purchase price, use, down payment, finance account, interest rate, term/amortization, and monthly payments.
Purchase Price and Interest Rate
The interest rate and the purchase price are closely related. Unlike other assessments such as homes, cars, boats, etc., the aircraft's purchase price and the loan amount drive the rate of interest charged. Aircraft Accounting does not affect the borrower's credit score. There might be some exceptions, but generally, the higher the loan amount, the lower the interest rate. Even though the standard rate program is fixed, some programs may vary. Aircraft used for private business or personal use have lower down-payment requirements, longer terms, and lower interest rates. Few variable rate programs are available today. But they are uncommon. For commercial use aircraft, the interest rates are higher than the private use aircraft.
Down Payment
Fifteen percent (15%) is the standard down payment of the purchase price. The aircraft has faced a huge financial crisis and devaluation in the past years. After this financial crisis and devaluation, the interest rate had increased to Fifteen percent, whereas before, it was only ten percent (10%). Zero percent down payment programs are not featured by general aviation Aircraft Accounting. Aircraft used for financial purposes requires twenty percent (20%) to thirty percent (30%) down payment. This depends on the length of desired time. Ten percent (with a rate premium) may be available for clients with exceptional credits. But the client needs to pay a premium rate-wise.
Monthly Payment
Just like mortgage payment, the monthly payment works. It is with maximum interest and low principal down payment each month. This process is for the first few months. If a client makes a minimum amount payment, they can gain two percent equity, the principal down payment. With passing time, the principal increases, and the interest decreases. Often with general aviation Aircraft Accounting loans, no pre-payment penalties are available. Hence, can pay the loan early without incurring any additional costs. There is an additional value, that as time goes on, the principal increases and the interest decreases.
Term and Amortization
Terms and amortization are generally for the same period. But there exist some balloon programs. In such programs, you will have to amortize payment for 20 years schedule and a term of 5 years. The balance of the term comes with a balloon due. Aircraft manufactured on or after 1976 are eligible to have terms up to twenty years.
On the other hand, Aircrafts manufactured before 1976 are eligible to have terms between ten to fifteen years. Commercial aircraft used a lot for traveling purposes will have a shorter loan period. This is because the value of the aircraft comes down for its higher usage. Visit Here: Advocate Consulting Legal Group, PLLC.