Credit without repayment

If you’re not careful, you pay off loan installments for life without ever becoming an owner. During the term you pay only the interest – without repayment. Can the repayment be suspended during the repayment term? The most common type of loan repayment is undoubtedly the so-called annuity repayment. Loans without a fixed repayment plan (eg bank overdrafts or Lombard loans) can be fully repaid by the debtors at any time.

The ball loan – repayment reduced to a petting slip

The ball loan - repayment reduced to a petting slip

In Germany, there is currently a large influx, which concerns the completion of mortgage lending. However, one type of credit is currently only very limitedly recommended, the so-called bullet loan. For the greater part of the real estate loans, interest is paid on one side and repayment on the other side during the contractually agreed period.

However, this excludes the so-called bullet loan, which only includes interest expense in the monthly installment. On the other hand, the repayment is de facto suspended for the entire loan term, so that it is only necessary to repay the credit amount in one go. The basic idea behind this type of loan is that the customer can transfer the part of the income that is actually intended for the regular repayment of the loan to another home savings contract.

Above all, linking the bullet loan with a private pension and endowment life insurance is no longer recommended by many experts. For the functioning of the bullet loan model, it is important that the interest rate of the savings plan chosen by the borrower does not exceed a certain minimum.

Loan settlement

Loan settlement

Finally, in the case of a bullet loan, there is no settlement of the repayment already made, as the repayment is postponed to the maturity of the loan. This naturally leads to financial loss, since the fixed interest rate is always calculated on the basis of the original loan amount and not, as in the case of annuity loans, on the residual debt remaining under the relevant repayment scheme.

However, this is often no longer possible in endowment and private pension insurance due to the massive decline in income. For example, anyone who can only earn a return of less than three percentage points on his life insurance in which the profit sharing is already included, will rarely be in the position required for the full repayment of the loan at maturity bullish loans to have the necessary amount of capital.

This means that you are currently either completely refusing to conclude a collective loan or choose another savings plan in connection with the loan, for example a fund of funds.