Bullet loan
Encyclopedia
In banking and finance, a bullet loan is a loan where a payment of the entire principal
of the loan, and sometimes the principal and interest, 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 loan
s, 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.
In China, certain types of bullet loans have been prohibited by the China Banking Regulatory Commission
due to concerns regarding Chinese banks' risk management capabilities. This extends only to lending to retail, commercial, and government clients, while not including the issuance of bonds or notes.
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
of the loan, and sometimes the principal and interest, 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
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
.
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 loan
Amortizing loan
In banking and finance, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan, according to some amortization schedule, typically through equal payments....
s, 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
Grace period
A grace period is a time past the deadline for an obligation during which a late penalty that would have been imposed is waived. Grace periods, which can range from a number of minutes to a number of days or longer, depending on the context, can apply in various situations, including arrival at a...
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.
In China, certain types of bullet loans have been prohibited by the China Banking Regulatory Commission
China Banking Regulatory Commission
The China Banking Regulatory Commission is an agency of the People's Republic of China authorised by the State Council to regulate the banking sector of the PRC except the territories of Hong Kong and Macau, both of which are special administrative regions...
due to concerns regarding Chinese banks' risk management capabilities. This extends only to lending to retail, commercial, and government clients, while not including the issuance of bonds or notes.