Bullet Loan Calculator

Bullet loans: interest now, principal later

A bullet structure pays the principal back as one lump sum at maturity. During the term you cover only the interest, or let it accrue and roll up. When the interest is being paid along the way, periodic interest = PV · i and the final payment works out to PV + last interest. So R$ 100,000 at 1% per month over 12 months hands you R$ 1,000 in each of the first 11 months, then R$ 101,000 at month 12.

This kind of repayment fits borrowers whose money mostly shows up at the tail end of the cycle. Think real estate developers waiting on the project handover, agribusiness operations tied to the harvest, M&A bridge loans waiting on a closing, and most corporate bonds. The catch is liquidity discipline, because when maturity arrives the whole principal has to be on hand or already refinanced.

Brazilian instruments

Tesouro Prefixado (LTN) and Tesouro IPCA+ Principal are bullets with a R$ 1,000 face value. CCBs, CRIs, CRAs, and corporate debentures lean bullet as well. Their convexity and duration run higher than an amortizing loan of the same maturity, which means the price swings harder when rates move. Holders of IPCA-linked Tesouro Direto felt exactly that in 2022.

FAQ

How does bullet differ from balloon? A balloon chips away at the principal during the term and leaves a big residual to settle at the end. A pure bullet amortizes nothing along the way. You pay the entire principal at maturity.

What if I cannot pay at maturity? The usual paths are refinancing, which most companies count on, restructuring, or default. That rollover risk is precisely what BCB rules make firms disclose under liquidity stress tests.

Why are bullets common in fixed income but rare in retail loans? Retail borrowers want small, predictable installments, while the financial system soaks up the rollover risk through wholesale funding. A bullet makes sense when the borrower has a believable cash inflow lined up at the end of the term.