new airplane buyers - be aware lenders wont finance past TBO engines

WannFly

WannFly

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just learned it the hard way, if you are looking at a past TBO engine (or event at 1700 + hrs) none of the AOPA lenders are going to finance it. spoke at length with the AOPA finance guy and he categorically mentioned that lenders like mid time engines, some will go till 1400-1500, NONE will go past 1700. the magic 2000 number has good hold everywhere
During the discussion i also came to know that this is true to high air-frame birds as well. anything above 8k on airframe and you have an uphill battle getting a rate, let alone a good rate.
wish i knew this before wasting a boatload of time for my mechanic, the seller and sellers mechanic. posting it here so that other first time buyers are aware.

now someone please flame me for even thinking about loan for a hobby
 
Thanks for posting - good info for the first time aircraft purchaser.

If you're hell-bent on this aircraft, you can self fund via a 401K loan, or look for a signature loan (SoFi, LendingClub, others) to borrow on acquiring the aircraft. If you planned to overhaul the engine while you own the aircraft, you could possibly refinance the aircraft once that's done and then use the proceeds to pay off the high interest signature loan.
 
rtk11 said:
If you're hell-bent on this aircraft, you can self fund via a 401K loan,
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$50k limit plus 10% withdraw penalty from IRS, plus another 10% interest (or more) from your custodian.

If he has a "self directed/solo 401k" where he's his own custodian, then he's good to go for a $50k penalty/interest free loan. ;)
 
rtk11 said:
Thanks for posting - good info for the first time aircraft purchaser.

If you're hell-bent on this aircraft, you can self fund via a 401K loan, or look for a signature loan (SoFi, LendingClub, others) to borrow on acquiring the aircraft. If you planned to overhaul the engine while you own the aircraft, you could possibly refinance the aircraft once that's done and then use the proceeds to pay off the high interest signature loan.
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Understand. But I have my own boundaries against 401k and signature loans. Just personal preference.

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455 Bravo Uniform said:
How much do you need and where are you located? POA "loan"?
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Nah..never borrow from someone I know let alone someone I don't know, that's a recipe for a strained relationship. I learn a ton from all u guys free of cost anyway

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Well, you could try Wings Financial Credit Union. They seem to be pretty flexible, but will require two appraisals to confirm value of the aircraft. Check first if they'll loan, and then if they will, just sign-up for the credit union online. (Normally it's reserved for people in the Seattle/Tacoma, WA or Minneapolis, MN area, or employees of the aviation industry)
 
WannFly said:
now someone please flame me for even thinking about loan for a hobby
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Why? People finance boats, motorhomes, motorcycles, and other such hobby craft. They also finance vacation properties. So wanting to finance a plane sounds legit to me.
 
DutchRoller said:
Why? People finance boats, motorhomes, motorcycles, and other such hobby craft. They also finance vacation properties. So wanting to finance a plane sounds legit to me.
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Dunno... but I have been flamed for much less

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DutchRoller said:
Why? People finance boats, motorhomes, motorcycles, and other such hobby craft. They also finance vacation properties. So wanting to finance a plane sounds legit to me.
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If you have to take out a loan, then the question is can you afford the plane and unexpected expenses than come with it. That's probably how we end up with so many planes abandoned on the ramp.
 
I financed one of my planes. I had the cash, but wanted to stay liquid. Paid it off way faster than the term of the loan. Engine was very close to TBO. Local bank.

Jim
 
azblackbird said:
$50k limit plus 10% withdraw penalty from IRS, plus another 10% interest (or more) from your custodian.

If he has a "self directed/solo 401k" where he's his own custodian, then he's good to go for a $50k penalty/interest free loan. ;)
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the 50k limit is correct, of up to half the account balance.

as far ar the pentalties, no.

you also pay the interest back to the account.
 
@midcap If he doesn't have a solo/self directed 401k and is part of a so-called defined benefit plan, I can almost guarantee you his custodian will impose fees/penalties on him for wanting to borrow "their" money... even though the money is his own. I went through all this crap many years ago when deciding how/who to set-up my 401k with. I went the self directed/solo route and am the custodian/beneficiary/trustee of my own plan. If I want a loan, it takes me about 15 seconds to do the paperwork and make the transfer. If I want to buy a gold coins, takes less than 5 seconds to complete the transaction. ;)
 
Why use AOPA? Local banks will often make aircraft loans IF you have a good credit score.
 
teejayevans said:
If you have to take out a loan, then the question is can you afford the plane and unexpected expenses than come with it. That's probably how we end up with so many planes abandoned on the ramp.
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I can ask the same question when people buy houses they can't afford or think they can

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kyleb said:
Why use AOPA? Local banks will often make aircraft loans IF you have a good credit score.
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I have excellent score, already checked with 2 locals, they already said no, then went to AOPA

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midcap said:
as far ar the pentalties, no.
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There are penalties in certain situations. If the 401k is set up under an employee benefits package, than any sort of job termination results in repayment of their loan within 60 days. If they don’t, the amount they borrowed is considered a distribution, which IS taxed and a 10% penalty is thrown onto it, but that's only if the borrower is under 59 and a half. Personally, I would never advocate for anybody to borrow against their 401k, whether or not it's self funded or part of your employer's benefits. It's sabotaging your retirement and certainly not a wise choice to make, especially to purchase an airplane.

You can do as you wish, but that's my 2c.
 
avongil said:
HELOC?
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You have to sit back and ask yourself...if somebody is that financially strapped, that they must pursue alternate means to borrow against, can they actually afford aircraft ownership and the responsibilities that ensue? The answer 99% of the time is NO.
 
Ryanb said:
You have to sit back and ask yourself...if somebody is that financially strapped, that they must pursue alternate means to borrow against, can they actually afford aircraft ownership and the responsibilities that ensue? The answer 99% of the time is NO.
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Just because someone has different priorities than you doesn't make them wrong.

And thank you @WannFly for sharing this. I had no idea this happens and its very good to know! :)
 
avongil said:
HELOC?
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That's what I did. The interest is deductible on taxes. Of course I paid it off fairly fast. This assumes, of course, there's enough equity in the house to qualify for the HELOC. Another advantage, no one asks what you're going to do with the money, and the interest is much lower than any other type of loan. I think I was paying about 3%.
 
Mtns2Skies said:
Just because someone has different priorities than you doesn't make them wrong.
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I never said it makes anybody wrong, nor am I suggesting that the OP is in this situation, I am generally speaking. People can do as they wish, I just look at things a bit different I suppose.
 
WannFly said:
I learn a ton from all u guys free of cost anyway
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I might start charging for my A+ advice before long, so you better soak it up while you can.


:D
 
If you're borrowing less than $100k, can handle a term of no more than 7 years and have good credit/good income, look no further than Lightstream. https://www.lightstream.com/aircraft-loans

Totally unsecured loan, so they do not care at all what kind of plane you're buying. I borrowed a little recently, at 4.85%, to finance a twin that most other lenders wouldn't touch (financing an older light twin isn't easy). Application process took less than 10 minutes, had a decision within 2 hours (on a Sunday) and they'll ACH the funds directly into your bank account. You then draw a cashiers check and buy the plane. They never ask what kind of plane you bought. It's almost too easy to be true.
 
kyleb said:
Why use AOPA? Local banks will often make aircraft loans IF you have a good credit score.
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Most(always exceptions) local banks don't want to touch plane loans with a 10ft stick.

WannFly said:
I have excellent score, already checked with 2 locals, they already said no, then went to AOPA

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Assuming you own your home, you could borrow against your equity line. Low interest.
 
Matthew K said:
Most(always exceptions) local banks don't want to touch plane loans with a 10ft stick.



Assuming you own your home, you could borrow against your equity line. Low interest.
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I could and I have enough HELOC, but that's my rainy day shield when my boss thinks I am not worth to keep me around. Nothing right or wrong, just my personal preference. I have done way too many reckless financial decisions and I would have more in a heartbeat, but few recent events have led me to believe I should backup or backups...financially. I can also pony up cash and I would, but the amount I would pony up is much less than what the seller is willing to part with. Not blaming the seller, he should sell his plane to the person who pays the most.

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rtk11 said:
Well, you could try Wings Financial Credit Union. They seem to be pretty flexible, but will require two appraisals to confirm value of the aircraft. Check first if they'll loan, and then if they will, just sign-up for the credit union online. (Normally it's reserved for people in the Seattle/Tacoma, WA or Minneapolis, MN area, or employees of the aviation industry)
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I recommend Wings CU too. Good rates and the two appraisals don't need to be fancy - can be done by an A&P filling out their form. I bought a 9k airframe and 1600 hour C182 using them.
 
Ryanb said:
You have to sit back and ask yourself...if somebody is that financially strapped, that they must pursue alternate means to borrow against, can they actually afford aircraft ownership and the responsibilities that ensue? The answer 99% of the time is NO.
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Don't really understand, a HELOC is a fantastic way to borrow if you must. It is very low interest. I Just purchased a CNC Lathe with a HELOC instead of using cash or a high interest loan.
 
WannFly said:
I could and I have enough HELOC, but that's my rainy day shield when my boss thinks I am not worth to keep me around. Nothing right or wrong, just my personal preference. I have done way too many reckless financial decisions and I would have more in a heartbeat, but few recent events have led me to believe I should backup or backups...financially. I can also pony up cash and I would, but the amount I would pony up is much less than what the seller is willing to part with. Not blaming the seller, he should sell his plane to the person who pays the most.

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Good man. I had the HELOC on the back burner for years and decided one day to leave my job and make some upgrades. It was the only way to get new machinery. No one wants to lend you money when you are starting out.
 
avongil said:
I Just purchased a CNC Lathe with a HELOC instead of using cash or a high interest loan.
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Ahhhhh... now I get your Avatar. I always did want to learn how to run and program a 3 axis or even a 5 axis CNC. My server admin's father owns a machine shop and makes aerospace parts. He's always writing programs for his dad's machines. I love watching them do their work, it's just fascinating to me.
 
avongil said:
Don't really understand, a HELOC is a fantastic way to borrow if you must. It is very low interest. I Just purchased a CNC Lathe with a HELOC instead of using cash or a high interest loan.
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The subject was buying airplanes though.

The acquisition cost is the cheap part. If you need significant amount of financing to acquire the aircraft, what pot of money are you going to use to keep, maintain and operate the aircraft. I think that was his point.
 
avongil said:
Don't really understand, a HELOC is a fantastic way to borrow if you must. It is very low interest. I Just purchased a CNC Lathe with a HELOC instead of using cash or a high interest loan.
Click to expand...

Fearless Tower said:
The subject was buying airplanes though.

The acquisition cost is the cheap part. If you need significant amount of financing to acquire the aircraft, what pot of money are you going to use to keep, maintain and operate the aircraft. I think that was his point.
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This was my point. Thank you.
This is a big reason why we see neglected airplanes on airport ramps. Owners get themselves upside down and cannot afford ownership costs and the aircraft ends up going to pot.
 
azblackbird said:
$50k limit plus 10% withdraw penalty from IRS, plus another 10% interest (or more) from your custodian.

If he has a "self directed/solo 401k" where he's his own custodian, then he's good to go for a $50k penalty/interest free loan. ;)
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That's not even close to accurate for penalties or interest on a 401k LOAN, which is what was mentioned not a withdrawal.


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Fearless Tower said:
The subject was buying airplanes though.

The acquisition cost is the cheap part. If you need significant amount of financing to acquire the aircraft, what pot of money are you going to use to keep, maintain and operate the aircraft. I think that was his point.
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I don't know the OP, but it's possible he wants the loan so he can keep a chunk of liquid assets for just such an eventuality. This way he can pay the loan back as finances allow while having a fund for unexpected maintenance.

John
 
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