Definition: A balloon payment is a large final payment due at the end of a loan term because the earlier payments have not fully repaid the debt.
Example
A loan’s regular payments reduce the balance to $180,000 when its five-year term ends. The remaining $180,000 is due as the balloon payment.
Keep the distinction clear
The loan term and the amortization period can differ. A loan with payments calculated over 30 years but a five-year maturity does not give the borrower 30 years to pay the balance. Refinancing is not guaranteed.
Related terms
Amortized Mortgage · Principal · Promissory Note
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References: CFPB: Balloon payments
Pronunciation (US): buh-LOON PAY-muhnt (capitals show stress)
Pronunciation reference: Merriam-Webster
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