A bullet loan may also be referred to as a balloon loan. There are other terms that may be used to describe the same type of loan, as well. In the context of banking, this kind of loan requires that the payment for the principal amount of the loan be given at the end of the loan term.
In some cases, this requires the payment of both the principal amount and the interest. The amount to be paid at the end of the term may be called bullet payment or balloon payment. A bullet loan can come in the form of a mortgage or another kind of credit. Short-term notes which do not offer interest may also be considered as a type of bullet loan.
The term for bullet loans can range from three to seven years. Since one big payment is required, interest rates may be lower, but it may not always be easy to come up with sufficient funds to pay the loan in full. Oftentimes, in order to meet the requirement of a balloon or bullet payment, the loan needs to be refinanced.
Bullet loans may be considered the opposite of amortizing loans. Under an amortizing loan, the principal amount is paid in installments. It is also possible for some loans to include a combination of types, depending on the conditions set by the lender.
Sometimes, in real estate, a small amount is required per month, and after a certain period a bullet payment must be made on a certain portion of the principal amount.