what is a balloon loan

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Set up for a relatively short term

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  • What is a balloon payment on a loan?

  • Updated Apr 13, 2019. A balloon loan is a type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan.

  • Are balloon loans a good idea?

  • Balloon loans are a mixed bag. They offer the rare opportunity for many people to get by on small monthly payments in the present and near future. Then down the line, they鈥檙e able to tackle a large singular payment down the line.

  • What is the difference between a balloon loan and amortized loan?

  • Balloon loans consist of smaller consistent payments with a large payment at the end of the loan. A fully amortized loan is one with fixed payments that continue until the loan is completely paid off. Both types of loans can be used for purchasing a home or car or as a personal loan.

  • How long does a balloon loan last?

  • For a balloon loan, that range is usually five to seven years. The difference is that the rates of these loans are much smaller, meaning the monthly installments are less expensive. Additionally, a balloon loan鈥檚 signature factor is its requirement of one large payment after the lending period concludes.

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