Steve Varsano explains that 80% of jet owners finance rather than pay cash, since they can earn better returns elsewhere. Banks typically lend 50-90% of the aircraft price over five to ten years, but loans under $5 million are rare because banks don't find them worthwhile.
Steve, I'm about to buy my first jet. Should I pay cash or should I finance it?
It really depends. If you can make more money than they're going to charge you at the bank, obviously then borrow the money. But I'd say about 80% of the people finance airplanes just because they can make more money with their own money, so they use the bank's funds. It really depends on what's the best use of your cash.
To finance a jet, how does it work?
It depends how old the airplane is. Usually you can borrow between 50% and 90% of the cost of the airplane, and then they usually amortize the loan over 5 or 10 years, and the interest rate depends big time on on what your credit level is like.
Is there ever a time where you suggest I pay cash?
Yeah, sure, because if you get an older airplane or you get an airplane that's, let's say, under $5 million, the banks don't really want to finance you because it's too much work. It's the same amount of work to do a $5 million loan as a $50 million loan, and they really don't want to do those kind of low-number loans. So it's best if you use cash on a small airplane.
Thanks, Steve. That's why I always choose the jet business.
