Balloon Payment
A large lump-sum payment due at the end of a loan whose earlier payments were kept artificially low.
What does balloon payment mean?
Balloon loans calculate payments on a long schedule but come due much sooner, leaving most of the principal owed in one final payment. Borrowers usually plan to refinance, sell, or pay the lump sum when it arrives.
Put it to use
Balloon Loan Calculator A balloon loan can be an excellent option for many borrowers. Use this calculator to see how a balloon loan might work for you. Balloon Mortgage Calculator A balloon mortgage can be an excellent option for many home buyers, use this calculator to see if a balloon mortgage might fit your needs.
Related terms
Balloon Payment — frequently asked
What happens at the end of a balloon loan?
You owe one large lump-sum payment for the remaining balance. Borrowers typically plan to refinance, sell the asset, or pay it off with savings — but if none of those work out, the balloon can force a scramble or default.
Why would someone choose a balloon loan?
Balloon loans offer lower monthly payments during the term because you are not fully amortizing the balance. They suit borrowers who expect a lump sum, a sale, or a refinance before the balloon comes due.