Bullet Loan

A bullet loan, or a balloon loan, is a loan that requires a lump sum payment (a “bullet” payment) at the end of the term. Bullet loan borrowers make periodical interest-only payments along the way and pay back the whole principal at maturity. A full bullet loan involves repayment of both the principal and the interest at the end of the term – but the interest will still accrue according to the loan terms (e.g., monthly or annually). Bullet loans are typically used only under certain circumstances, most often in real estate lending.