Financing Options - Avionics Upgrade

Bman.

Bman.

Pre-takeoff checklist
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Bman.
Hey all-

I have an avionics upgrade coming up in a couple of weeks and we have reached the point to where it makes sense to finance a portion of the upgrade versus shelling out buckets of cash. We are looking at financing around $30,000 / 10 year term or so. The addons just keep coming with the upgrades.

Who has had success both with rates and service from some of the aviation financing players seen online?

USAircraftfinance.com ?
AOPA ? (they have high rates... prime +5)
Madison Capital

Thanks for any input-
Benjamin
 
Bman. said:
Hey all-

I have an avionics upgrade coming up in a couple of weeks and we have reached the point to where it makes sense to finance a portion of the upgrade versus shelling out buckets of cash. We are looking at financing around $30,000 / 10 year term or so. The addons just keep coming with the upgrades.

Who has had success both with rates and service from some of the aviation financing players seen online?

USAircraftfinance.com ?
Click to expand...

I use US Aircraft Finance for my aircraft loan, they said they'd do up to 50% on avionics upgrades, I didn't ask for any rates at the time.

They've been fine handling my loan.
 
Local credit union! If you have equity you aren’t concerned about using do a home equity line. Your Avionics loan is the same I have out for my bird and some upgrades and such- HELOC from local credit union 1.99% for 3 years, payment is 1.5% of balance. After that it’s tied to prime - though they have had the three year intro offer for 6 or 7 years now- all ya gotta do when the three years is up is increase your credit line $3k and it starts the 1.99 again.... cheap money. At that rate there’s no reason to use existing funds that are returning more than that...
 
TCABM said:
I did not understand that webinar would be about financing avionics.

I read it to mean the product options available when upgrading your avionics.
Click to expand...

Good thing you prefaced it then :D It's about the options you have when it comes to paying for avionics upgrade.

I'll take a second look at the wording as well.

Cheers,

Steve
 
Bman. said:
Hey all-

I have an avionics upgrade coming up in a couple of weeks and we have reached the point to where it makes sense to finance a portion of the upgrade versus shelling out buckets of cash. We are looking at financing around $30,000 / 10 year term or so. The addons just keep coming with the upgrades.

Who has had success both with rates and service from some of the aviation financing players seen online?

USAircraftfinance.com ?
AOPA ? (they have high rates... prime +5)
Madison Capital

Thanks for any input-
Benjamin
Click to expand...

You own an airplane and don’t have a good relationship with a bank?
 
Of course I have great relationships with many banks. I was just looking for something creative since I have the cash to pay outright. I thought maybe there were good options within the aviation market but they are largely prime + 1.5% or higher.

I’ve opted to use my HELOC at prime rate. Took the equivalent cash of the loan and set up two Kasasa accounts since they are capped at $25k each. This will make more money with the compounding interest than the HELOC diminishing balance interest.


Sent from my iPhone using Tapatalk
 
Clip4 said:
You own an airplane and don’t have a good relationship with a bank?
Click to expand...

That's pretty well the norm isn't it?
You have a great relationship with your bank for years. The bank manager finds out you've become an airplane owner. You immediately get put on their credit watch list of high risk customers. ;)
 
Take a loan out of your 401k..... we know that you won’t need it.
 
Bman. said:
Of course I have great relationships with many banks. I was just looking for something creative since I have the cash to pay outright. I thought maybe there were good options within the aviation market but they are largely prime + 1.5% or higher.

I’ve opted to use my HELOC at prime rate. Took the equivalent cash of the loan and set up two Kasasa accounts since they are capped at $25k each. This will make more money with the compounding interest than the HELOC diminishing balance interest.


Sent from my iPhone using Tapatalk
Click to expand...

I see the current prime rate as 5.5%. Are you saying you can get a higher rate in a Kasasa account?
 
Sam D said:
I see the current prime rate as 5.5%. Are you saying you can get a higher rate in a Kasasa account?
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No, no - I wish! 3% on the Kasasa account.
The compounding growth is higher at 3% than the diminishing loan interest at 5.5%.

Compounding interest for $40,000 at 3.0% annual / 5 years = $6,370.96 interest made
Diminishing Interest for $40,000 at 5.5% annual / 5 years = $5,843.00 interest paid


Benjamin
 
Rgbeard said:
I second the 401(k) loan. You pay interest to yourself.
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Except not all 401K plans allow loans. The max term is 5 years and if you change jobs your loan is due April 15. Fail to meet the rules and the loan becomes a distribution subject to a 10% penalty + the tax due.
 
Last edited:
Clip4 said:
Except not all 401K plans allow loans. The max term is 5 years and if you change jobs your loan is due April 15. Fail to meet the rules and the loan becomes a distribution subject to a 10% penalty + the tax due.
Click to expand...

I guess I need to contact my attorney for a quick review, and consider adding to my posts this disclaimer:

------------------

Subject to terms and conditions. Please read and understand all requirements and limitations of any financial instrument and/or advice before simply trusting something "Some guy on the Internet", who may, or may not have been well-intentioned, said in a post on PoA.
 
Bman. said:
No, no - I wish! 3% on the Kasasa account.
The compounding growth is higher at 3% than the diminishing loan interest at 5.5%.

Compounding interest for $40,000 at 3.0% annual / 5 years = $6,370.96 interest made
Diminishing Interest for $40,000 at 5.5% annual / 5 years = $5,843.00 interest paid


Benjamin
Click to expand...

Unfortunately, you'll end up behind in that scenario. Your $6,370.96 in interest assumes the $40,000 remains untouched for the 5 years rather than being used to service the debt. To compare both scenarios, you'd need to either: a) draw down the $40,000 to make the HELOC payments; or b) add cash to the no-financing scenario each month as if you were making payments to yourself. In both scenarios, buying upfront is a better deal given these two interest rates.

One other consideration, while the interest income is taxable, the interest expense on the HELOC (not used on real estate) is not deductible. So the after-tax gap between the rates is even larger.

Hope this helps.
 
Sam D said:
Unfortunately, you'll end up behind in that scenario. Your $6,370.96 in interest assumes the $40,000 remains untouched for the 5 years rather than being used to service the debt. To compare both scenarios, you'd need to either: a) draw down the $40,000 to make the HELOC payments; or b) add cash to the no-financing scenario each month as if you were making payments to yourself. In both scenarios, buying upfront is a better deal given these two interest rates.

One other consideration, while the interest income is taxable, the interest expense on the HELOC (not used on real estate) is not deductible. So the after-tax gap between the rates is even larger.

Hope this helps.
Click to expand...

Correct - the assumption is "untouched". I would have to treat it as if I just paid the cash out the avionics.
You make a good point however on the taxable interest. That does change things a bit.

The question is I guess, is it worth 5.5% to hang on to the cash. Sure is nice to hold the cash but if the HELOC is available anyway, I should rip the band-aid off, pay cash and save the interest expense.
Benjamin
 
  • most new radios go up in price every year.
  • Fewer trips to avionics shop saves you money
 
Rgbeard said:
I second the 401(k) loan. You pay interest to yourself.
Click to expand...
Please don't do that. What if you leave your company or are fired? The loan is do in full. 401k loans should be the absolute last resort.
 
I hope this doesn’t sound argumentative and it will FOR SURE make me sound super old fashioned, which I am, but this just doesn’t sound like the kind of thing to finance ESPECIALLY on a ten year term.

Unless you fly as part of your business, financing something like this just doesn’t sound like a good approach with your money. That said, if there is no family to support that depends on you for their livelihood, then it’s much more reasonable to go that far out with your debt obligations. I don’t know anything about your financial situation. For all I know you have a trunk full of hundred dollar bills to fall back on, but you prefer to leave them in the trunk, which would make it a much different situation than it sounds.
 
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