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Bullet Loan

A Bullet Loan, also known as a balloon loan, is a special form of lending where the entire loan amount becomes due at the end of the duration. During the loan's tenure, only regular interest payments are made at predefined intervals. This is in contrast to the traditional annuitiy loan, where a portion of the principal is repaid with each installment.

The distinctive feature of a Bullet Loan lies in the total maturity of the debt at the end of the term. This leads to a higher overall interest cost compared to an amortizing loan. While this aspect is advantageous for the lender, it also entails an increased level of risk. The outstanding amount does not decrease continuously during the term, presenting a higher risk for the lender.

For the borrower, there is a significant advantage to this form of lending. There are no major financial burdens during the term, as the repayment of the loan occurs only at the end of the tenure.

Bullet Loans thus represent a targeted financing strategy that offers specific benefits for both lenders and borrowers. Understanding the unique characteristics of a Bullet Loan enables both businesses and individuals to make well-informed decisions regarding their financing needs.