How Aircraft Financing Works (A comprehensive guide)

Financing an airplane is no small task. Here's our guide on how to simplify the process.

Purchasing your own aircraft is an exciting experience, but just like with any large purchase you may be feeling a bit overwhelmed. The journey to owning your dream aircraft involves a crucial step: understanding how aircraft financing works. That’s why we’ve created this guide: to explain the complexities of aircraft financing and dive deep into the loan process.

How Does Aircraft Financing Work?

Just like other forms of financing, aircraft financing follows the same principles but with different considerations due to the niche characteristics of aircraft. Let’s break down the basics:

  1. Loan to Value (LTV): This ratio determines the percentage of the aircraft’s value that a lender is willing to finance. LTV varies based on factors like the type of aircraft, its age, usage (pt. 91, pt. 135) and your creditworthiness.
  2. Interest Rates: Aircraft finance rates are influenced by factors such as market conditions, the borrower’s credit score, financed dollar amount and the chosen financing option. A lower interest rate can significantly impact the overall cost of ownership.
  1. Liens: Lenders often place a lien on the aircraft as collateral for the loan. This legal interest ensures the lender’s security in case of default.

Expected Aircraft Financing: Loan to Value

The loan-to-value (LTV) ratio in aircraft financing is determined by a few different factors:

  • Aircraft Type: Different types of aircraft may have varying LTV ratios.
  • Age and Condition: Older aircraft may have lower LTV ratios due to depreciation.
  • Borrower’s Creditworthiness: A higher credit score may result in a more favorable LTV ratio.
  • Aircraft usage: Part 91 vs part 135 will influence the LTV due to hours a year flown. (higher use=lower LTV)

Factors Affecting Aircraft Financing Interest Rate

Several considerations affect the interest rate in aircraft financing:

  • Credit Score: A higher credit score often leads to a lower interest rate.
  • Market Conditions: Economic factors such as Federal funds rates, SOFR rate, and WSJ Prime Rate impact interest rates in the aviation finance sector.
  • Loan Term: The length of the loan term can affect the interest rate offered.
  • Amount Financed: Lower finance amount will lead to a higher interest rate.

Will a Lien Be Put on My Aircraft?

Yes, a lien is a standard practice in aircraft financing. The lender places a lien on the aircraft as collateral, ensuring their interest in the asset. This legal measure protects the lender’s rights in the event of default and provides a structured approach to risk management.

There are two types of liens to consider: Consensual Liens and Non-Consensual Liens

Consensual liens are typically agreed-upon between a lender and an owner, or another party with an interest in the property. This could include aircraft mortgages and security agreements.

Non-consensual liens arise by operation of law, not as the result of an agreement between the parties – mechanics’ liens being primary examples. In the US these are governed by state law and vary from one state to another.

Read More: AvBuyer- What You Should Know About Aircraft Liens

Steps for Aircraft Financing

Navigating the aircraft financing process requires a systematic approach. Let’s break down the essential steps.

Step 1: Establish Your Budget

When exploring aircraft financing, it’s necessary to establish a realistic budget. Consider factors such as your financial capacity, how you plan to use the aircraft, and operational costs. You can use resources like the Aircraft Finance Calculator to plan out your potential budget. Most lenders require a DTI (Debt to Income) ratio below 46%. This is calculated after the aircraft purchase is included in your total monthly payments of all debt service.

Step 2: Apply for Aircraft Financing

Once you have a clear budget, the next step is to apply for aircraft financing. Explore reputable financing options, such as those offered by Flying Finance, and submit your application. Be prepared to provide financial documentation and details about the intended use of the aircraft.

Step 3: Shop for an Airplane and Sign a Purchase Agreement

With financing pre-approved, embark on the exciting phase of shopping for your dream airplane. Collaborate with platforms like Aircraft For Sale and AvBuyer to explore available options. Once you find the right aircraft, sign a purchase agreement that outlines the terms and conditions of the transaction.

Step 4: Establish Structure of the Purchase

Consider placing the airplane under a single-use Limited Liability Company (LLC) to provide additional layers of protection and flexibility. The structuring of the purchase involves legal considerations that impact ownership and liability, making it a crucial step in the financing process.

Step 5: Set Up Insurance, Escrow, Title, and Legal Documents

As the transaction progresses, set up essential elements such as insurance, escrow, and legal documents. Aircraft insurance is a critical component, providing financial protection and compliance with regulatory requirements. Work with professionals to ensure a seamless process.

Step 6: Close on the Airplane

Now that you have assessed your budget, chosen an aircraft, and purchased insurance you are ready to begin the closing process, where all legal and financial aspects are finalized. This includes the transfer of ownership, finalizing documentation, and the disbursement of funds. 

Understanding the closing process will allow a smooth transition to aircraft ownership.


The world of aircraft financing may seem intimidating, but don’t let that discourage you from acquiring your dream airplane! Though this guide has provided a thorough overview of the process, we recommend that as you continue to step into the world of aviation finance you explore  additional resources to improve your knowledge and make informed decisions. Whether you are a first-time buyer or a multi-aircraft owner, FLYING Finance is here to help you with your aircraft financing needs.

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