What is a Bullet Loan?

A bullet loan allows a borrower to make only one payment to settle the entire debt incurred at the end of a loan. Instead of providing regular installments on a debt, the borrower simply has to repay the debt in full upon its maturity. Unlike a "call loan," a bullet loan has an exact maturity date known to both parties in advance.

Advantages of a Bullet Loan

These loans provide absolute flexibility to a borrower who is investing in, or growing a business. Since the profit from the business cannot be earned until the business is opened and running, the borrower may not have funds to contribute to installments in the meantime. A bullet loan stays all payments until a future date when profits can be expected 

Risks of a Bullet Loan

All too often, expected profits fail to materialize. If a borrower has made zero payments toward a loan and does not earn enough profits to pay off the loan in full, the borrower will be facing a huge debt and a large possibility of default. An installment loan reduces the principal each month leading up to the maturity date, providing better protection against a sudden negative consequence of inability to pay.

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