Aircraft Loan Terms Explained: Choosing the Right Duration

Understanding Loan Terms: The Basics

The loan term is the length of time you have to repay your aircraft loan, typically expressed in years. Common aircraft loan terms range from 5 to 20 years, with 15 years being most popular for piston aircraft. The term you choose affects three critical elements of your financing:

• Monthly Payment Amount: Longer terms spread payments over more months, resulting in lower monthly payments
• Total Interest Paid: Longer terms mean paying interest for more years, dramatically increasing total interest
• Interest Rate: Shorter terms often receive slightly better interest rates from lenders

To illustrate, consider a $150,000 aircraft loan at 7.5% interest comparing different terms:

• 10 years: $1,779/month payment, $63,480 total interest, payoff in 120 months
• 15 years: $1,390/month payment, $100,200 total interest, payoff in 180 months
• 20 years: $1,209/month payment, $139,760 total interest, payoff in 240 months

The 20-year loan's monthly payment is $570 lower than the 10-year option, but you pay $76,280 more in total interest. These numbers demonstrate why term selection requires careful consideration beyond just monthly affordability.

How Loan Amortization Works

Aircraft loans use an amortization structure where each payment includes both principal (reducing your loan balance) and interest (the lender's profit). Early payments are mostly interest with little principal reduction. As the balance decreases over time, more of each payment goes toward principal.

For a $150,000 loan at 7.5% over 15 years ($1,390/month):

• Payment 1: $938 interest, $452 principal (67% interest, 33% principal)
• Payment 60: $754 interest, $636 principal (54% interest, 46% principal)
• Payment 120: $494 interest, $896 principal (36% interest, 64% principal)
• Payment 180: $9 interest, $1,381 principal (1% interest, 99% principal)

This amortization structure means extra principal payments early in the loan have maximum impact. Paying an extra $200/month in years 1-5 eliminates far more interest than the same $200/month in years 11-15.

Comparing Common Aircraft Loan Terms

Short Terms (5-10 Years)

Advantages:

• Dramatically lower total interest paid (often 50% less than 20-year terms)
• Build equity faster—important if you plan to sell or upgrade
• Typically receive the best interest rates (0.25-0.5% lower than long terms)
• Debt-free much sooner, freeing cash flow for other goals
• Less vulnerable to being "upside down" if aircraft values decline

Disadvantages:

• Much higher monthly payments strain budgets
• Less flexibility to handle unexpected expenses or income changes
• May limit aircraft choices due to higher payment requirements
• Qualification is harder due to debt-to-income ratio calculations
• May force you to sacrifice other financial goals to afford payments

Best For: Buyers with strong cash flow who want to minimize total costs and build equity quickly. Those who plan to own the aircraft long-term but want to be debt-free sooner. Buyers purchasing aircraft they might sell within 5-10 years who want equity buffer.

Medium Terms (12-15 Years)

Advantages:

• Balanced monthly payments that most buyers can afford comfortably
• Reasonable total interest—less than long terms but more than short terms
• Moderate equity building provides some protection against value declines
• Good interest rates, though slightly higher than shortest terms
• Typical term in the industry, so widely available from lenders

Disadvantages:

• Still pay significant interest over loan life
• Slower equity building than short terms means less flexibility to sell early
• Higher monthly payments than 20-year options reduce budget flexibility
• May take most of your ownership period to pay off the aircraft

Best For: Most aircraft buyers. Offers the best balance of affordable monthly payments and reasonable total interest. Works well for buyers who plan moderate-length ownership (7-15 years) or who want balance between payment flexibility and cost efficiency.

Long Terms (18-20 Years)

Advantages:

• Lowest possible monthly payments make ownership accessible
• Maximum budget flexibility for unexpected expenses or income fluctuations
• Easier qualification due to lower payment-to-income ratios
• Can often afford more aircraft than with shorter terms
• Flexibility to make extra principal payments if circumstances improve

Disadvantages:

• Dramatically higher total interest—often double short-term interest
• Very slow equity building means being "upside down" for many years
• Slightly higher interest rates than shorter terms
• Debt obligation extends well into future, limiting financial flexibility
• May pay on aircraft longer than you own it if you sell before term ends

Best For: Buyers who need maximum payment affordability and plan very long-term ownership. Those who value budget flexibility and payment certainty over minimizing total cost. Buyers who plan to make extra principal payments when able but want low required minimum payments.

Factors to Consider When Choosing Your Term

Current and Projected Income Stability

Your income stability should heavily influence term selection. Buyers with stable W-2 employment, consistent income, and strong job security can more comfortably choose shorter terms with higher payments. Self-employed buyers, commission-based earners, or those with variable income should lean toward longer terms providing payment flexibility during lean months.

Consider your income trajectory. Early-career buyers expecting significant income growth might choose 20-year terms now with plans to refinance shorter or make extra payments as income rises. Mid-career buyers at peak earnings might prioritize shortest affordable terms to minimize total cost.

Other Financial Goals and Obligations

Aircraft ownership shouldn't derail other financial priorities:

• Emergency Reserves: Maintain 3-6 months living expenses plus aircraft reserves
• Retirement Savings: Don't sacrifice retirement contributions to afford shorter terms
• Children's Education: Balance aircraft payments with education savings if applicable
• Other Debt: Factor in mortgage, auto loans, and other obligations
• Home Maintenance: Homeowners need reserves for property maintenance and repairs

If a 10-year term forces you to stop retirement contributions or depletes emergency reserves, choose a longer term. Aircraft should fit into your overall financial plan, not dominate it.

Planned Ownership Duration

How long you plan to own the aircraft affects optimal term selection. If you plan to sell in 5-7 years to upgrade or downsize, owing substantially more than the aircraft's value creates problems. Shorter terms (10 years) or larger down payments ensure you'll have equity when ready to sell.

Conversely, if you plan to keep the aircraft until it's paid off, term length matters less from an equity perspective (though total interest still matters). Focus on balancing affordability with cost efficiency.

Interest Rate Environment

Current interest rates affect the cost of long-term borrowing. When rates are low (say 5-6%), the difference between 10 and 20-year total interest is less dramatic. When rates are high (8-10%+), long terms become proportionally more expensive, making shorter terms more attractive if affordable.

In high-rate environments, some buyers choose longer terms with plans to refinance shorter when rates drop. This strategy works but carries risk if rates don't decline or if your circumstances change preventing refinancing.

Aircraft Depreciation Considerations

Piston aircraft depreciate, though typically less dramatically than automobiles. Newer aircraft lose value faster initially, while older aircraft in the "sweet spot" (15-30 years old) often depreciate more slowly. Very old aircraft (40+ years) may even appreciate if well-maintained and desirable.

If buying a newer aircraft likely to depreciate significantly, shorter terms help ensure your loan balance doesn't exceed the aircraft's value. For older, stable-value aircraft, longer terms carry less risk of being severely upside down.

The Power of Extra Principal Payments

Most aircraft loans allow prepayment without penalties. Even small extra principal payments significantly reduce total interest and loan duration. Consider these examples for a $150,000 loan at 7.5% over 15 years (base payment $1,390):

• Extra $100/month: Saves $18,480 in interest, pays off 27 months early
• Extra $200/month: Saves $32,760 in interest, pays off 48 months early
• Extra $500/month: Saves $55,200 in interest, pays off 81 months early

This strategy offers the best of both worlds: choose a longer term for payment security, but make extra payments when possible to reduce total cost. In difficult months, you're only obligated to the lower base payment. In good months, extra payments accelerate payoff.

Focus extra payments in early loan years when they have maximum impact. An extra $2,000 paid in year 1 prevents far more interest accrual than $2,000 paid in year 10.

Refinancing: Changing Terms Later

You're not permanently locked into your initial term choice. Refinancing allows you to adjust terms based on changed circumstances:

Refinancing to a Shorter Term

After several years of payments and possible income increases, you might refinance from 20 years to 10-15 years. This works well when:

• Your income has increased significantly since original purchase
• You've paid down other debts, improving debt-to-income ratio
• Interest rates have dropped, making shorter terms more affordable
• You want to pay off the aircraft before retirement or another milestone

Refinancing to a Longer Term

Sometimes extending the term makes sense:

• Financial hardship makes current payments unsustainable
• You want to free up cash flow for other investments or opportunities
• Major unexpected expenses require budget relief
• Income reduction due to job change, retirement, or business downturn

However, extending terms late in the loan resets the amortization schedule, potentially costing significant interest. Only extend terms when truly necessary, and resume extra payments when circumstances improve.

Read our comprehensive guide on aircraft loan refinancing for detailed information on when and how to refinance.

Term Selection for Different Buyer Profiles

First-Time Buyers

First-time aircraft buyers often underestimate true ownership costs. A 15-20 year term provides payment flexibility while you learn actual expenses. After 2-3 years of ownership, you'll better understand costs and can decide whether to refinance shorter or maintain the term.

Experienced Owners

Experienced owners who understand costs can confidently choose shorter terms if financially feasible. They know what to budget for maintenance, insurance, and operations, reducing uncertainty around affordability.

Retirees and Near-Retirees

Pre-retirees should consider whether they want aircraft debt in retirement. A 55-year-old choosing a 20-year term will make payments until age 75. Many prefer 10-15 year terms to eliminate debt before or shortly after retirement. Retirees on fixed incomes often prioritize payment stability, making longer terms attractive despite higher total cost.

Business Owners

Business owners using aircraft for business may optimize differently. Business use can provide tax deductions, changing the effective cost calculation. Consult with tax advisors about how term length affects depreciation schedules and deduction strategies.

Making Your Term Decision

To choose your optimal term:

1. Calculate affordability: Use our affordability calculator to determine maximum comfortable payment
2. Model scenarios: Use our loan calculator to compare 10, 15, and 20-year terms with different down payments
3. Factor total costs: Consider not just monthly payments but total interest paid over loan life
4. Assess flexibility needs: Balance between lowest total cost and payment security/flexibility
5. Consider prepayment strategy: Will you make extra payments? If so, longer terms with aggressive prepayment might work
6. Evaluate equity needs: How important is rapid equity building for your situation?
7. Consult professionals: Discuss with talk to our financing team who can model various scenarios

There's no universally "correct" answer—the right term depends on your specific financial situation, goals, risk tolerance, and values. Some buyers prioritize minimizing total cost above all else, while others value payment flexibility and stability. Both approaches are valid when matched to appropriate circumstances.