Balloon Payment Definition

A balloon payment is a large, lump-sum payment made at the end of a loan’s term. It is most often used in car loans and commercial real estate loans. Balloon payments are not made in installments like regular loan payments are; instead, they are a single payment that covers the remaining principal of the loan. This can make it difficult to come up with the money for a balloon payment when it’s due.

To make a balloon payment, you usually have to refinance the loan or sell the property. If you don’t do either of these things, you will default on the loan and probably ruin your credit score. That’s why it’s important to understand what a balloon payment is and how it works before you take out a loan that has one.