finance
balloon payment
A balloon payment is a large lump-sum payment due at the end of a loan that is not fully amortized by its regular payments. Loans with balloon payments often have lower monthly payments, but the borrower must pay off, refinance, or sell before the balloon comes due. Partially amortized and interest-only loans commonly end with a balloon payment, and federal rules limit balloons on certain consumer mortgages.
- Exam tip
- Associate balloon payments with partially amortized and interest-only loans. A fully amortized loan never has a balloon.
- Example
- A $200,000 seller-financed loan has payments based on 30 years but is due in 5 years. At year 5 the buyer owes a balloon payment of about $185,000.
Related terms & state variants
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Last verified: 2026-10-23