11 May 2018

Balloon Payment

Finance feed by:

RK & Associates

CA Firm    •    100% (2 votes)   •    15 Year 9 Month  experience

Balloon payment is the lump sum payment which is attached to a loan, mortgage, or a commercial loan. This payment is usually made towards the end of the loan period. Balloon payment is higher than what you might be paying towards the loan on a monthly basis.

The good part about balloon payment is that they have lower initial payments. They are ideal for companies or borrowers who might be facing cash crunch in the short term, but expect the liquidity to improve in the future.

Balloon payment can be a part of both fixed as well flexible interest rate structure. By attaching a balloon payment to a loan, the borrower is able to cut down on the interest payment that is being made on a monthly basis by the borrower. This can only be possible because the entire loan is not amortised.

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