Which debt repayment profile pays only interest throughout the loan term, and pays off the full principal at the end of the loan term?

Which debt repayment profile pays only interest throughout the loan term, and pays off the full principal at the end of the loan term?

• A. Bullet repayment
• B. Amortized repayment
• C. Installment repayment
• D. Interest-only repayment

Answer: (A)

The bullet repayment profile is characterized by periodic interest payments made throughout the loan term, with the entire principal amount repaid in one lump sum at the end of the term. This structure is particularly advantageous for borrowers who expect to have larger cash inflows in the future, allowing them to manage their cash flow more effectively during the loan period without the strain of principal repayment. In this type of repayment, while the borrower benefits from lower monthly payments during the term, they face a significant repayment obligation at the end. This can be appealing for specific financing needs, such as project financing or initial stages of business growth, where cash flow may be constrained initially. Understanding the differences between repayment profiles is essential, as it helps in assessing the borrower’s ability to meet future obligations and the overall risk associated with the loan structure. The other repayment options involve different mechanisms for handling both interest and principal payments throughout the loan term, which do not align with the characteristics of a bullet repayment structure.

The bullet repayment profile is characterized by periodic interest payments made throughout the loan term, with the entire principal amount repaid in one lump sum at the end of the term. This structure is particularly advantageous for borrowers who expect to have larger cash inflows in the future, allowing them to manage their cash flow more effectively during the loan period without the strain of principal repayment.

In this type of repayment, while the borrower benefits from lower monthly payments during the term, they face a significant repayment obligation at the end. This can be appealing for specific financing needs, such as project financing or initial stages of business growth, where cash flow may be constrained initially.

Understanding the differences between repayment profiles is essential, as it helps in assessing the borrower’s ability to meet future obligations and the overall risk associated with the loan structure. The other repayment options involve different mechanisms for handling both interest and principal payments throughout the loan term, which do not align with the characteristics of a bullet repayment structure.