Lenders throw around a lot of vocabulary that doesn't get defined anywhere. Here's what the terms on your aircraft loan documents actually mean, in plain English — organized by where you'll run into them in the process.
The portion of the purchase price you pay in cash at closing rather than financing. Certified piston aircraft typically require 15% down; newer or less-established turbine types sometimes require 20%. Example: 15% down on a $400,000 aircraft is $60,000, financing the remaining $340,000.
Loan-to-Value (LTV)
The loan amount expressed as a percentage of the aircraft's value. An 85% LTV loan (the mirror of 15% down) means the lender is financing 85 cents of every dollar the aircraft is worth. Lower LTV generally means better terms, because the lender has more equity cushion if the aircraft needs to be repossessed and sold.
Amortization
The schedule by which your loan balance is paid down over time through regular payments. Each payment covers that period's interest first, with the remainder reducing principal — so early payments are interest-heavy and later payments are principal-heavy, even though the payment amount stays the same.
Term Length
How many years you have to repay the loan. Aircraft loans commonly run 10–20 years depending on aircraft age and type; a longer term lowers the monthly payment but increases total interest paid over the life of the loan.
Interest Rate vs. APR
The interest rate is the raw cost of borrowing the principal. The Annual Percentage Rate (APR) rolls in certain fees and costs, giving a slightly more complete (and usually slightly higher) picture of the loan's true annual cost. Use the calculator to see how a given rate translates into a real payment.
Fixed vs. Variable Rate
A fixed rate stays the same for the life of the loan, so your payment never changes. A variable (or adjustable) rate can move with a benchmark index, meaning your payment can rise or fall over time. Most aircraft loans in this market are fixed-rate.
Balloon Payment
A larger, lump-sum payment due at the end of some loan structures, after smaller regular payments throughout the term. Balloon structures lower the monthly payment along the way but require a plan — refinance, sale, or cash — for the final amount.
Getting Approved
Pre-Approval vs. Approval
Pre-approval is a preliminary read on what you can likely borrow and at what rate, based on your financials and credit — useful for shopping with confidence. Full approval happens after the specific aircraft, its inspection, and final documentation are in hand. See our loan process for the full timeline.
Soft Pull vs. Hard Pull
A soft credit pull checks your credit without affecting your score — used for pre-approval. A hard pull is a formal credit inquiry tied to a specific loan application, which can have a small, temporary effect on your score. FLYING Finance pre-approvals use a soft pull.
Debt-to-Income Ratio (DTI)
Your total monthly debt payments divided by your gross monthly income. Lenders use it to gauge how much additional payment you can comfortably absorb. A common misconception is that DTI calculations "double count" an existing loan when refinancing — they don't; see aircraft loan vs. personal loan for more on how aircraft debt is evaluated differently than other consumer debt.
Collateral
The asset securing the loan — in this case, the aircraft itself. If the borrower defaults, the lender's recourse is tied to the collateral, which is why aircraft condition, documentation, and market value all factor into underwriting.
Co-Applicant / Guarantor
A co-applicant is jointly and equally responsible for the loan and typically has an ownership interest in the aircraft. A guarantor backs the loan financially (often for a business entity's debt) without necessarily holding title. See our co-applicant page for how this affects an application.
Entity Financing
Financing structured through an LLC, trust, or operating company rather than an individual's personal name — common for business use, tax planning, and liability separation. See LLC vs. personal title for the tradeoffs.
The Contract
Recourse vs. Non-Recourse Loan
In a recourse loan — the standard for aircraft financing — the lender can pursue the borrower personally for any shortfall if the collateral is repossessed and sold for less than the outstanding balance. A non-recourse loan limits the lender's claim to the collateral alone. Aircraft loans are almost always recourse.
Personal Guarantee
A borrower's (or principal's) written promise to personally repay the loan if the primary borrower — often a business entity — fails to. Lenders commonly require this on entity-financed aircraft, especially for newer companies without an established credit history.
UCC-1 Filing / Lien
A UCC-1 (Uniform Commercial Code) filing is the public record a lender files to establish and protect its security interest in the aircraft — similar in spirit to a mortgage lien on a house. It puts other creditors on notice that the lender has a claim on the asset until the loan is satisfied.
Title & FAA Registration
Aircraft title is tracked through the FAA Civil Aviation Registry rather than a state DMV. A title search confirms clear ownership and reveals any existing liens before closing; the lender's lien is recorded with the FAA once the loan funds.
Prepayment Penalty
A fee some loans charge if you pay off the balance early — designed to protect the lender's expected interest income. Not all aircraft loans carry one; it's worth confirming before you sign, especially if you anticipate refinancing or selling within a few years.
Closing Costs
The fees associated with finalizing the loan — items like the title search, UCC-1 filing fee, and loan documentation fees. These are typically smaller than in real estate closings but should be confirmed upfront so there are no surprises at signing.
After You Close
Refinance
Replacing an existing loan with a new one — usually to secure a lower rate, adjust the term, or release equity. See refinancing & upgrade options for when refinancing an aircraft loan actually makes sense.
Hull Insurance Requirement
Lenders require the aircraft be insured for at least the outstanding loan balance, with the lender named as loss payee, for the life of the loan. This protects the lender's collateral interest, not just the owner's investment. See the aircraft insurance guide.
Escrow
A neutral third party holds funds (and sometimes the aircraft's registration paperwork) until all closing conditions are satisfied, then releases them to the appropriate parties. This protects both buyer and seller during the handoff. See title & escrow.
Residual / Balloon Value
The aircraft's expected value at a future point — relevant if your loan has a balloon structure, or if you're comparing financing to a lease. It's an estimate, not a guarantee, and should be treated conservatively when planning your exit.
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Now that the vocabulary makes sense, see what it actually looks like on your aircraft and your credit profile.
What's the difference between pre-qualification and pre-approval?
Pre-qualification is a rough, often self-reported estimate; pre-approval involves an actual soft credit pull and financial review, and carries more weight when you're ready to make an offer.
Do aircraft loans use the same terms as auto loans?
Many of the mechanics overlap (LTV, amortization, term), but aircraft loans involve FAA title registration and UCC-1 filings instead of a state DMV lien, longer typical terms, and more borrower documentation the higher the aircraft's value.
Is a personal guarantee always required for LLC-owned aircraft?
Not always, but it's common — especially for newer entities without an established credit and financial history. An established operating company with strong financials may negotiate around it.
What happens if I don't understand a term on my loan documents?
Ask before you sign. A good lender will walk through every term in your documents in plain language — if something isn't clear, that's a normal and expected question, not an inconvenient one.
General lending and title/registration concepts referenced above reflect standard U.S. aircraft finance practice and FAA Civil Aviation Registry procedure. This page is educational and not legal or financial advice — loan terms vary by lender and by transaction; always review your specific loan documents with your lender or an aviation attorney.
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