RATE OPTIONS FOR AIRCRAFT LOANS
With many loans, the loan term can be as long as 15 or 20 years. However, the interest
rate may be fixed for a much shorter time-frame. Listed below are some of the more
common interest rate options.
Prime Rate +
This is a variable loan program that adjusts when the Prime Rate changes. This is
perfect for shorter-term loans or clients who wish to take advantage of the current
lower rates in the market. While rates are low, you will have the opportunity to
pay down more principal balance thus building equity in your aircraft faster.
3 Year Fixed/Adjustable
Since most aviation loans are held for approximately 3 years, this product tends
to be the most popular option. Many of our customers like this option because maintenance
cost, engine overhauls, and avionics upgrades often require an existing loan to
be refinanced. This offers the confidence of a fixed rate for a typical term of
an aircraft loan while allowing rate adjustments every 3 years without the requirement
of a balloon payment or all new loan documents.
5 Year Fixed/Adjustable
This option is another great way to take advantage of the today’s low rates! If
you are confident that you will have your aircraft for a few years and you will
not need to finance any major repairs or upgrades, then this may be your best option.
5 or 7 Year Balloon
Many banks offer a 5 or 7-year balloon for aircraft loans. This program again offers
the comfort of a fixed rate for a longer period of time; however, the largest draw
back to this type of loan is a large payment or balloon that is due at the end of
the term. This balloon payment will typically require you to either sell or refinance
your aircraft at a time when rates may be high. Balloon programs, unlike adjustable
rate programs, do not have a fixed index rate by which the interest rate will adjust
after the initial fixed rate period.
15 – 20 Year Fixed
If you are not needing to upgrade your plane and avionics, or finance overhauls
every few years, then this type of program may be for you. Since rates are at their
lowest point in years, many people think that this is the best loan program for
them.
Before you choose a loan program, be sure to evaluate your specific needs and the
plans for your aircraft.