November 2019

Flight training financing – What you should look out for when you take out a loan

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Pilot training is expensive. Many prospective pilots cannot afford the necessary money for the training and are dependent on a loan. However, pilot training financing involves some risks and you should pay attention to some things. What exactly do we go into here? 

Not every bank is right for you!

Not only the pilot training is very special, but also the financing of the training is a special topic. If you are looking for bank financing, the bank should be familiar with pilot training and be able to make you a special offer.

The book "Direct to Pilot" provides you with the best information about the complexity of pilot training. Ask your contact at the bank how well he knows about the training. Then you will quickly find out whether you have an expert in front of you or not. 

What guarantees do you need?

If you want to finance your pilot training, your banks will require certain credit securities from you to ensure that you repay the loan. That's right, because it's the only way to ensure that you don't get yourself into a financial emergency.

In addition, the banks know how uncertain it is that you will get a job with an airline after your pilot training.

You have the following options to give the bank security for your loan:

  • Real estate - you own land somewhere
  • Immovables - You own an apartment or a house
  • Securities accounts - you have invested in securities that you can deposit as collateral
  • second borrower with good credit rating - for example, your parents earn well and sign additionally
  • A guarantor with a good credit rating - A person you trust tells the bank that they will step in for you if you are unable to repay the loan.
  • Airline guarantee - An airline assures you that it will cover you after your training.

The bank will demand additional collateral from you in addition to the normal collateral. The following are useful proofs that can be requested:

  • Proof of medical fitness - Medical
  • Air service suitability insurance - Loss of License
  • training cost insurance
  • term life insurance

How is a loan repaid? How is a loan repaid?

You can repay a loan by one-time payments or by instalments.

The installments for the repayment of the credit consist of two amounts. On the one hand, you pay interest for the fact that the bank gave you the loan. On the other hand, with each payment you reduce the total amount of the credit. This second part is called repayment. With it you reduce your debts.

What special conditions should the loan include?

Below you will find important conditions that you should pay attention to if you want to finance your pilot training with a loan.

Why you should be able to suspend payment in instalments or repayment in the event of unemployment.

You first need a certain amount of time for your training. During this time you won't earn any money and have to learn a lot on the one hand and watch how you finance your living on the other hand. So it would be good if you could start with the repayment of the loan only after the training. But hardly any bank will do this. But asking questions costs nothing.

However, it does not mean that you will get a job immediately after your training. And even if you are hired immediately, during the initial internal training and the type rating you will receive only a very small salary, if any. A few more months can go by until you have your first full salary in your account. Therefore, you should only be able to start paying off after a certain period of time.

In addition, the installment payment or at least the repayment of the loan should be suspended during unemployment.

If you suspend the installment payments completely, the interest will still continue so that the total amount of the loan will increase. But it gives you the financial leeway to make a living.

If you defer repayment, you reduce the installment so that you only pay the interest on the loan. This means that the total amount is not more, but not less. And yet this variant also gives you the opportunity to get back on your feet financially.

Why should you be allowed to make a special repayment?

The training costs a lot of money, but you can still deduct it from your tax. You can declare at least part of your training costs on your tax return and expect a tax refund.

However, you can only get taxes back if you have also paid taxes. However, as you usually do not earn any money during your training, you cannot get any taxes back at this point.

If you are employed as an airline pilot, you earn money and can claim the training costs and expect a tax refund.

You should be able to use this amount to make special repayments (one-off payments as repayment of the loan, so to speak). This will enable you to repay the loan more quickly.

Therefore, make sure that you can also make special repayments on your loan.

Why you won't get a loan with 0% interest

Even if you may find credits with 0% interest in advertising at the moment, you cannot compare these offers with a training credit for pilot training. The higher flexibility in repayment and the higher risks of pilot training generally allow banks to pay higher interest rates. 

Compare multiple offers

Obtain several offers from different banks. Also take a look at offers that are not offered by the flight school and compare them all with each other.

If you have real estate or other securities, you can also discuss alternative forms of financing with a bank and have a corresponding offer made to you. For example, it will be cheaper to use real estate as collateral than a special student loan. Instead, this offer will be less flexible to your needs as a student pilot.

Why you should consider a credit-financed pilot training well

If you want to finance your pilot training, you are inevitably taking huge financial risks. The topic of risks plays an important role in pilot training. Be aware of the risks you take.

Since the topic is so extensive and far-reaching, I have described everything in detail in the book "Direct to Pilot". In many places I discuss the financial risks of private pilot training.

Above all, you should not underestimate the risk of not getting a job as a pilot and losing your medical skills. So consider carefully whether you take the financial risk and take out such a large loan for pilot training, or whether there are other ways for you.

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