Invest now and pay later - your guide to bullet loans
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WHAT IS A BULLET LOAN?
With this form of financing, you take out a loan where you only repay the entire loan amount at the end of the term. This is also known as amortization with final maturity. You pay the interest monthly, quarterly or annually during the term. It is important that you have a plan for how you can repay the entire loan amount at the end of the term.
WHAT IS THE DIFFERENCE TO AN INSTALLMENT LOAN?
With an installment loan, you not only pay the interest during the term, but also repay your loan amount in regular installments. Although the monthly amounts are higher than with a bullet loan, the loan amount is already paid at the end of the term.
Good to know: Bullet loans are generally more expensive than installment loans. In the case of bullet loans, interest is charged on the entire loan amount until the end of the term. With installment loans, each installment contains a portion of the loan amount. This also reduces the interest on an ongoing basis.
HOW DOES A BULLET LOAN WORK?
If you want to take out a bullet loan, you process it as follows:
Find a bank or an alternative lender that offers a bullet loan. Enter your required loan amount with the desired term.
Your lender will then check your creditworthiness and determine whether you are creditworthy. Proof of income and financial obligations (e.g. alimony, existing loan installments) are often requested and credit checks are carried out.
If the check is positive, the contract is then signed. This specifies how much money you will receive, what interest you have to pay for which term and when you have to repay the total amount.
During the term, you pay back the agreed interest every month.
At the end of the term, you repay the entire loan amount at once.
HOW IS THE INTEREST CALCULATED?
In a standard interest calculation, the interest is calculated from the loan amount, the interest rate and the term. In the case of a bullet loan, the outstanding loan amount is not reduced during the entire term. This means that the interest will always be calculated for the entire loan amount during the entire term.
Different loan providers also charge interest and fees differently. Things like additional annual fees or a variable interest rate instead of a fixed rate can play a major role.
When calculating with compound interest, you not only pay interest on your original loan amount, but also on the interest you have already paid. This can lead to an overall increase in your interest. Therefore, always pay attention to the effective interest rate. This includes all interest.
Source: zinsenvergleich
CAN I ALSO REPAY EARLY?
Early repayment is possible with some banks. If you plan to repay money in advance, make sure that this option is included in the contract. You may have to pay a fee - known as a prepayment penalty - for early repayments.
IS IT POSSIBLE TO TERMINATE A BULLET LOAN?
Banks also often charge a fee for early termination. Therefore, always find out in advance what conditions are involved. Also make sure that a termination option is stipulated in the contract.
IS IT POSSIBLE TO COMBINE SEVERAL LOANS?
Yes, that is possible. If you need to finance different types of expenditure, there are often different conditions for this. For example, you can combine short-term bridging with long-term financing.
Example: You take out a bullet loan because you want to renovate an apartment that you will then rent out. The money you can get from the bank is not quite enough. However, you know that you will receive money from your relatives or by paying out a savings form in a short time and only need the missing money to bridge the gap.
In this case, you can combine the bullet loan with a pawn loan, for example, by pawning one of your collaterals. For this type of loan, you don't need any further collateral such as an incoming salary or a positive credit check. You also get your money paid out immediately.
Our tip: Pawn loans are suitable for short-term bridging.
WHO IS A BULLET LOAN SUITABLE FOR?
A bullet loan makes sense if you are certain that you will be able to repay the full loan amount at the end of the loan term. This requires precise planning. Bullet loans are therefore particularly suitable for the following borrowers:
Investors & capital investors: If you want to rent out a property, as in our example, a bullet loan is particularly suitable. During the construction phase or renovation of the property, the monthly costs are comparatively low. From the moment the property is rented out, money can be saved to repay the bullet loan at the end of the term.
People who expect to receive a large sum of money in the future: If you are certain that you will receive a large sum of money in the future, this type of loan is also suitable for you. For example, if you know that you will receive money from an inheritance, through the sale of a property or from a life insurance policy, you can easily repay your loan at the end of the term.
Entrepreneurs & the self-employed: In certain business situations, a bullet loan can make sense. For example, to increase your solvency or to make an investment that will subsequently generate more money for your company. However, the risk is higher in this case. You should plan carefully and be sure that your investment will lead to you being able to repay the money in the end.
Our tip: Careful planning is very important for a bullet loan. That's why it often pays out to seek professional financial planning advice.
WHAT OTHER CREDIT OPTIONS ARE THERE?
There are many different financing options. Below you will find an overview of the most common ones:
CREDIT FORM | THAT MEANS |
|---|---|
Personal loan (installment loan) | You borrow a certain amount of money. The monthly installments are made up of a portion of your loan amount and the interest on the loan. |
Overdraft facility (account overdraft) | The bank allows you to spend more money than you have in your current account. The maximum possible credit limit for most banks is three months' salary. |
Car leasing | You can use such a car, but you don't actually own it. Some providers give you the option of buying the car at the end of the term for a certain residual amount. |
Construction financing (mortgage loan) | You take out a long-term loan to buy a property or build a house. In this case, you use your property itself as collateral. You can also also refinance your house. |
Credit card | You can use your credit card to spend money that you only have to pay back later. Most providers also allow you to pay in installments for an additional fee. |
You use collateral or a car as security to take out a loan. You are usually paid out the money immediately. With many providers, you can extend your pawn loan as often as you like. | |
Crowd funding | You borrow money from a group of people via a platform. |
CAN A PAWN LOAN BE COMPARED WITH A BULLET LOAN?
If you plan to extend a pawn loan several times, you can compare it with a bullet loan. In both cases, you only pay the monthly fees and only pay the total amount at the end of the term.
However, there are some differences between a pawn loan and a bullet loan:
Collateral: To be able to borrow money from a pawnshop, you only need collateral.
Loan amount: The loan amount for a pawn loan depends directly on your collateral. It is therefore more suitable for small to medium loan amounts.
Term: The term for a pawn loan is usually between 30 and 90 days. You therefore only take out your loan for a limited period of time. However, as you can extend as often as you like, it is also possible to take out a pawn loan for a longer period, even if the fees are higher compared to other forms of financing.
Requirements: You must be of legal age for a pawn loan and own collateral. There are no other requirements or hurdles for a pawn loan.
Credit without debt: If you are unable to pay your loan amount at the end of the pawn loan, you will lose your item, but you will be debt-free afterwards.
FREQUENT QUESTIONS
WHAT IS THE DIFFERENCE BETWEEN A BULLET LOAN AND AN ANNUITY LOAN?
With a bullet loan, you only pay back the interest each month. At the end of the term, the total amount is due. With an annuity loan, you also repay the loan amount in equal installments.
WHERE CAN I FIND A CALCULATOR FOR BULLET LOANS?
On zinsen-berechnen.de you will find a calculator for bullet loans. Set the repayment installment to zero and enter your loan term as the repayment period. You can find a detailed description directly on the homepage.
WHAT IS A REPAYMENT VEHICLE?
You repeatedly pay money into a repayment vehicle during the term of your bullet loan. At the end of the term, enough money must have been paid in to settle your debt. This can also be an insurance policy or a savings plan, for example.
WHY DOES MY FINANCIAL SITUATION NOT MATTER FOR A PAWNSHOP?
You use your collateral as security. You receive money from the pawnshop in return. If you are unable to repay your loan, your item can be auctioned off and your debt is settled. This is why a pawn loan is also known as a "loan without debt".
IS THERE AN ONLINE CALCULATOR FOR PAWN LOANS?
Yes, pawn shops like CASHY give you an immediate online indication of how much money you can borrow for your item for over 60,000 collateral items and cars.