A large lump-sum payment due at the end of a loan term.
A balloon payment is a substantial final payment due at the end of a loan—typically much larger than regular monthly payments. Loans with balloon payments are structured so that monthly installments cover only interest and a small portion of principal, with the remaining balance due in one large payment at maturity. These are common in car leases, commercial real estate, and some mortgages. While balloon payments lower monthly obligations, they require planning to have sufficient cash available at the end of the term. Borrowers often refinance or sell the asset (like a car) before the balloon payment comes due, but there's always the risk of being unable to pay if circumstances change.