Bullet Loan

Repayment type: bullet

Also known as: endfälliges Darlehen, Festdarlehen, interest-only loan, non-amortizing loan

Only interest is paid during the term; the whole principal falls due at maturity. Common for bridge financing, Schuldschein notes, bond-style corporate loans, and loans paired with a separate repayment vehicle such as a building-savings contract or a life insurance.

How it works

1. Formula

$$I_t = B_0 \cdot r$$ $$A_t = I_t \quad \text{for } t < n$$ $$A_n = I_n + B_0$$

where $B_0$ is the principal, $r$ the interest rate per period, $n$ the number of periods, $I_t$ the interest and $A_t$ the installment in period $t$. The balance never changes until the final installment.

2. With the terms

$$\text{Interest} = \text{Principal} \cdot \text{Rate per period}$$ $$\text{Installment} = \text{Interest}$$ $$\text{Final installment} = \text{Interest} + \text{Principal}$$

3. With the example numbers: 100,000 EUR, 4.00 % p.a. with one installment per year, 5 installments.

$$I_t = 100{,}000 \cdot 0.04 = 4{,}000.00$$ $$A_1 = A_2 = A_3 = A_4 = 4{,}000.00$$ $$A_5 = 4{,}000.00 + 100{,}000 = 104{,}000.00$$

Example

100,000 EUR at 4.00 % p.a., 5 years, one installment per year.

The bullet loan is the cheapest to carry and the most expensive overall: 20,000.00 interest against 12,313.55 for the annuity loan, because the full balance earns interest for five years.

In LoanMonitor

• Wizard, Terms: repayment type Bullet. The schedule shows interest rows and a final row with the full principal.
• A bullet loan that is refinanced at maturity continues through a Renewal; see Rate Lock and Prolongation.
• Partial repayments before maturity are recorded as Extra Repayments.

Related

• Loan Types overview
• Balloon Loan
• Construction and Drawdown Loans