Bullet Payment
A single, large repayment of principal at a loan’s maturity.
Detailed Description
Bullet Payment
What is a bullet payment?
A bullet payment is a large payment due at the end of a loan term, with only interest or minimal payments made during the term.
In which scenarios are bullet payments commonly used?
Bullet payments are used in real estate financing, corporate financing, bridge loans, and specialized financial situations.
What are the advantages of bullet payments?
Advantages include cash flow management, lower initial payments, flexibility in planning, and potential for higher returns.
What are some disadvantages of bullet payments?
Disadvantages include repayment risk, potential need for refinancing, sensitivity to market conditions, and higher interest rates.
Can you give an example of a bullet payment?
A developer takes a $1 million bullet loan, pays interest for three years, and repays the principal using profits from selling the property.