repayment
Balloon Payment
A balloon payment is a large lump-sum payment due at the end of a loan after smaller periodic payments.
Last updated Reviewed by ICG Funding
Definition
What it means.
Balloon loans carry lower monthly payments than a fully amortizing loan because they do not fully pay down principal over the scheduled term. When the balloon comes due, borrowers typically refinance, sell the underlying asset, or pay the balance in cash.
Balloon structures are common in commercial real estate and equipment financing. They are rare in general working capital loans. Be careful: if you cannot refinance or pay at maturity, the lender can call the loan and foreclose on any collateral.
Now what?
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