A Business Encyclopedia

Balloon Payment

Definition: The Balloon payment is the final amount paid against the loan and is much higher than the regular monthly installments. Simply, the lump sum amount attached to a loan which has to be paid (generally at the end of the loan period) to extinguish the loan is called as a balloon payment.

The need for a balloon payment may arise due to the inadequacy of the previous installments in setting off the loan amount or due to some error or late payments. If any loan comes with a balloon payment, it is termed as a “Balloon Loan”.

Such payment is more prevalent in the mortgage cases, where the full amount is not amortized over a period of time, and the final payment is due at maturity. Thus, the final payment is called the balloon payment because of its larger size (value).

The Balloon loans may be useful for those investors whose monthly cash flows are uncertain and believes that will be able to pay off the lump sum amount at the time of maturity. But, this kind of loan carries a huge risk, as there could be a situation when an investor may not be able to pay such a big amount.

Therefore, to overcome such problem several lenders allow the investors to convert their balloon loans into the traditional loans, generally on or near the date when the lump sum payment is due.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

path goal theory leadership styleswhat is the meaning of sole proprietorshipdelfi techniqueindifference curve definition examplemeaning of multifacetedbehavioural segmentation definitionexplain fiscal deficitdefine alpha testing and beta testingliquidated assets definitionchannel member definitionmeaning of critical path methodinnovation means in hindidiminshing marginal utilitytreasury bills definitionforecasting methods with examplescross elasticity of demand definitionsemantic differential rating scalequening theorylinearly homogeneous production functionwhat are the ethical theories in businessdefinition of geocentric modelteleological ethical theoriesscientific aptitude meaningdefine whistle blowingexample of oligopoly in economicsdefinition of inductdefinition of teleologicaldefinition of rationingwhat is oligopoly market structuredefine autocratic leadership stylemcclelland three needs theorytaylorism scientific management definitionforego defalderfer's ergliability in hindisubsistence wagesintraprenershipalderfer theoryneft timingperfectly elastic demand meaningdifference between hire purchase and installmentformula of profitability indexstratified sampling definition and examplewhat are the three ethical theoriesbudgetary control definition wikipediadefinition of neutral stimulusdefinition of unstructured interviewunique feature of oligopolydefinition of equity theorymeaning of sebimicroeconomics budget linedefinition of liquidatepoison pill financespearman statisticsdistributive bargaining examplesfull form of kiosksampling distribution of a proportionadvantages of travellers chequesdefinition of judgemental samplingstages of manpower planningrole of collective bargaining in hrmspearman's coefficient of rank correlationcapital turnover ratio analysisclassical conditioning easy definitionhomogeneous oligopolytheories of profit in managerial economicsjob rotation and job enrichmentdefinition monopolisticneo classical definitionrediscounting of billsdefine b2b e commercesemantic scalesjob enlargement and job enrichmentdef ascertain