Bullet loan
Term loans (including fixed loans , maturity loans , interest-only car loan or English bullet repayment ) are loans in which the entire loan amount at the end of the loan term due is. In contrast to bullet loans, amortization loans are .
General
As a rule, repayment loans, which can be divided into annuity loans and installment loans . With these, regular repayments are made during the loan term based on a repayment schedule on which the loan agreement is based , which leads to a permanent reduction in the loan amount. The debt service consists of repayment and interest, the latter is reduced during the term due to repayment. In the case of bullet loans, the entire loan amount is only due at the end of the loan term. The debt service therefore only consists of consistently high interest payments, provided there are no interest rate adjustments during the term .
Advantages and disadvantages of bullet loans
Amortization loans are the norm in particular because they mostly serve to finance operational investments , the saved depreciation of which can be used for repayment, so that the lender's credit risk is continuously reduced. This also applies to consumer loans that can be repaid from the monthly income.
In the case of fixed-term loans, the repayment can possibly take place in a sum from the saved liquidity reserves of the financed project. Here, however, the credit risk remains unchanged during the term. Because of the comparatively higher interest burden for the borrower in the case of fixed loans, there must be good reasons why no regular repayments should be made.
While the borrower has a constant liquidity burden due to repayment within the term of amortization loans , there is a one-off, high liquidity burden on the due date with bullet loans. This can be offset by expected income from the sale of fixed or current assets or through follow-up financing.
Real estate financing
Annuity loans are characteristic of real estate financing . Bullet loans can be granted in real estate financing if they are combined with a repayment replacement. As a repayment replacement, the assignment of endowment life insurance , private annuity insurance , building society contracts or investment funds come into question, whereby the full repayment is guaranteed from the repayment replacement due at the same time. For this it is necessary that the terms of the real estate financing are harmonized with the term of the repayment replacement. The minimum savings are part of the loan agreement.
Reasons for the freedom to repay
There are three main reasons for grace-free fixed loans:
Integration of existing contracts in the financing
If you already have endowment life insurances or building society contracts, it often does not make sense to dissolve them in order to use the capital saved in them for financing. Instead, part of the loan is taken out with no repayment, and the capital payment is used for repayment when it becomes due. The loan agreement was then a bridging loan until maturity of the contract.
Tax motives
In the case of rented property, the interest on the debt is tax deductible as costs. According to the old law, income from life insurance was tax-free after 12 years. For this reason, it made sense for taxpayers with a corresponding tax burden to agree to a repayment suspension.
Interest rate differential transactions
Investing in equity funds offers a statistical risk premium of around 2% on safe investments. Borrowing with suspension of repayment and repayment by funds is often motivated by the desire to generate a positive interest rate differential ( interest rate differential business ). However, this is associated with corresponding risks. If the performance of the mutual fund is lower than expected, then a financing gap arises at the end of the loan term because the value of the investment units is less than the loan debt then due.
With a secure financial investment (e.g. life insurance , building society loan agreement ), however, there is usually a negative interest rate differential, i. H. the interest paid exceeds the income generated at the same time. In economic terms, suspension of repayments therefore typically makes the loan more expensive.
Examples
Repayment plan for a fixed loan of 100,000 euros with a fixed interest rate of 5.00% pa and a term of 5 years.
| year | Remaining debt | interest | Repayment | annual installment (interest + repayment) |
|---|---|---|---|---|
| 1 | € 100,000.00 | € 5,000.00 | € 0.00 | € 5,000.00 |
| 2 | € 100,000.00 | € 5,000.00 | € 0.00 | € 5,000.00 |
| 3 | € 100,000.00 | € 5,000.00 | € 0.00 | € 5,000.00 |
| 4th | € 100,000.00 | € 5,000.00 | € 0.00 | € 5,000.00 |
| 5 | € 100,000.00 | € 5,000.00 | € 100,000.00 | € 105,000.00 |
| to hum | € 25,000.00 | € 100,000.00 | € 125,000.00 |
Comparison with other types of loans
Repayment plans for the three most common types of loan: Capital: 100,000 euros, interest rate: 5.00% pa, term: 5 years
| year | Remaining debt | interest | Repayment | Annuity |
|---|---|---|---|---|
| 1 | € 100,000 | € 5,000 | € 20,000 | € 25,000 |
| 2 | € 80,000 | € 4,000 | € 20,000 | € 24,000 |
| 3 | € 60,000 | € 3,000 | € 20,000 | € 23,000 |
| 4th | € 40,000 | € 2,000 | € 20,000 | € 22,000 |
| 5 | € 20,000 | € 1,000 | € 20,000 | € 21,000 |
| to hum | € 15,000 | € 100,000 | € 115,000 |
| year | Remaining debt | interest | Repayment | Annuity |
|---|---|---|---|---|
| 1 | € 100,000 | € 5,000 | € 18,097 | € 23,097 |
| 2 | € 81,903 | € 4,095 | € 19,002 | € 23,097 |
| 3 | € 62,901 | € 3,145 | € 19,952 | € 23,097 |
| 4th | € 42,949 | € 2,147 | € 20,950 | € 23,097 |
| 5 | € 22,000 | € 1,100 | € 22,000 | € 23,100 |
| to hum | € 15,488 | € 100,000.00 | € 115,488 |
| year | Remaining debt | interest | Repayment | Annuity |
|---|---|---|---|---|
| 1 | € 100,000 | € 5,000 | 0 € | € 5,000 |
| 2 | € 100,000 | € 5,000 | 0 € | € 5,000 |
| 3 | € 100,000 | € 5,000 | 0 € | € 5,000 |
| 4th | € 100,000 | € 5,000 | 0 € | € 5,000 |
| 5 | € 100,000 | € 5,000 | € 100,000 | € 105,000 |
| to hum | € 25,000 | € 100,000 | € 125,000 |