Bullet loan


Bullet loan

In banking and finance, a bullet loan is a loan where a payment of the entire principal of the loan, [cite news|last=Howard|first=Bob|title=Insurers brace themselves for oncoming 'bullets.'|Publication=Los Angeles Business Journal|date=1993 April 26|url=http://www.thefreelibrary.com/Insurers+brace+themselves+for+oncoming+'bullets.'+(intermediate-term+...-a013927724|accessdate=2007-04-17] and sometimes the principal and interest, [See, for example, http://www.anz.com/edna/dictionary.asp?action=content&content=bullet_loan Edna Carew, "The Language of Money" (Financial Dictionary).] is due at the end of the loan term. Likewise for bullet bond. A bullet loan can be a mortgage, bond, note or any other type of credit.

The payment that is due at the end of the loan is referred to as the bullet payment or balloon payment.

Bullet loans are common, and usually referred to by other names; bullet loan is a generic and unofficial term. Many types of publicly-traded bonds and notes constitute bullet loans: the face value of the bond is payable at bond maturity, and only interest payments are due during the interim periods. Short-term bonds or notes which pay no interest are also a form of bullet loan.

Bullet loans should be contrasted with amortizing loans, where the amount of principal is paid down over the life of the loan. There is no requirement that a loan be a bullet loan or an amortizing loan; combinations of all sorts exist. For example, a loan may have a grace period during which no principal is paid; partial amortization during the remainder of the loan; and a bullet payment at the end of the loan that is some percentage of the original principal.

ee also

* Balloon payment mortgage

References


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Look at other dictionaries:

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