Bullet vs Installment Loan: Which Is Cheaper?
With a bullet (interest-only) loan, you pay only the interest each month and return the full principal in a lump sum at maturity. With an installment loan (EMI), each payment includes both interest and a portion of the principal, gradually reducing the outstanding balance. Because the principal stays fully outstanding with a bullet loan, total interest paid is always higher than with installment repayment at the same rate and term.
Despite the higher total cost, bullet loans offer lower monthly payments, which improves short-term cash flow. They are often used in mortgage and business financing where the borrower expects a lump sum event — such as a property sale — to repay the principal. When comparing options, always evaluate total interest, not just the monthly payment amount.
Frequently Asked Questions
For a 100 million KRW loan at 5% over 3 years, a bullet loan costs about 15 million KRW in total interest, while an installment loan costs about 7.8 million KRW — roughly twice the cost.
This depends on the lender's terms. Some banks allow repayment type changes at renewal, but most require a new loan contract. Prepayment penalties may apply if you switch before the penalty-free period.