In this article, we explore three common repayment models in Singapore’s financing landscape:
- Principal + Interest (P+I)
- Interest-Only (also known as Bullet Scheme)
- Balloon Payment Scheme
Each has its own purpose, cash flow impact, and suitability depending on your financial situation and plans.
1. Principal + Interest (P+I)
This is the most common and straightforward instalment model.
How it works:
- Your monthly payment includes both the principal (the loan amount) and interest.
- The repayment is fixed (for fixed-rate loans) and fully amortizing.
- Over time, more of your payment goes toward the principal and less to interest.
Example:
A $100,000 loan over 5 years at 5% interest would result in fixed monthly payments of approximately $1,887.
Best for:
✅ Predictable monthly budgeting
✅ Borrowers who want to fully repay the loan by the end of the term
✅ Long-term financing like property or machinery
2. Interest-Only (Bullet Scheme)
In an interest-only loan, also called a bullet loan, you only pay the interest each month. The entire principal is due in one lump sum at the end of the loan tenure.
How it works:
- Monthly payments are much lower during the term (interest-only).
- No principal is repaid until the end of the loan — at which point it must be settled in full.
Example:
For a $100,000 loan at 5%, you’d pay $417/month in interest. At the end of 12 months, you’d repay the full $100,000 principal.
Best for:
✅ Short-term financing needs
✅ Businesses awaiting incoming payments or asset disposal
✅ Bridging loans and developers between project stages
Risks:
⚠️ Higher total interest paid
⚠️ Must have a clear exit strategy or refinancing plan
⚠️ Payment shock if unprepared for lump sum
3. Balloon Payment Scheme
This structure offers low monthly instalments, but with a large “balloon” payment at the end of the term — typically a portion of the principal that remains unpaid.
How it works:
- You pay off part of the principal monthly (like P+I), while deferring a large amount.
- The remaining “balloon” is paid as a lump sum at maturity.
Example:
A $100,000 loan with a $30,000 balloon means your monthly payments are based on $70,000. You’ll repay the remaining $30,000 at the end.
Best for:
✅ Borrowers who expect to sell or refinance the asset
✅ Vehicle or equipment financing
✅ Businesses managing tight monthly cash flow
Risks:
⚠️ Balloon amount must be paid regardless of asset value
⚠️ Can lead to refinancing pressure
⚠️ Less equity built during loan term
Comparison Table
| Scheme Type | Monthly Payments | Final Payment | Ideal For |
|---|---|---|---|
| Principal + Interest | Fixed P+I instalments | None | Long-term ownership, stability |
| Interest-Only (Bullet) | Low (interest only) | 100% principal at end | Short-term loans, bridging strategies |
| Balloon Scheme | Low with deferred portion | Partial principal lump sum | Asset buyers planning resale/refi |
Final Thoughts
Each instalment scheme has a purpose. Whether you’re a business owner, investor, or borrower, understanding the repayment structure behind your loan is just as important as the interest rate.
Before choosing a scheme, ask yourself:
- Can I handle the final lump sum?
- Am I optimizing for cash flow or total interest cost?
- Do I have a solid exit or refinancing strategy?
The right structure can support growth. The wrong one can cause strain at the worst time.