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Balloon Payment

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A balloon payment is the final installment payment for what is commonly known as a balloon, or bullet loan. A balloon loan is a loan that has not been fully serviced by monthly loan payments and so has a large final payment -- the balloon payment -- due at maturity. A balloon payment may be due on any partially amortized or unamortized loan. The primary advantage of a balloon loan is the smaller monthly payments prior to the final balloon payment. The primary disadvantage to a balloon loan is making provisions for the balloon payment which is due at maturity. In some states lenders are required to allow borrowers to refinance a loan prior to the balloon payment coming due.

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