Balloon payment

A balloon payment is a larger, lump-sum amount due at the end of an asset finance facility, structured so the regular repayments through the term are lower than they would be if the full loan amortised evenly. It is common on vehicle and equipment finance where the asset retains meaningful resale value at the end of the term, allowing the balloon to be sized against that expected residual rather than requiring the borrower to pay down the full asset cost during the loan. Borrowers taking a facility with a balloon payment need a plan for meeting it at maturity — refinancing the balloon, trading in or selling the asset, or paying it out from other funds — since it does not disappear simply because the regular repayments have been maintained. Lenders size the balloon conservatively against the asset type and expected age and condition at the end of the term, since an oversized balloon against a depreciating asset's actual residual value is a risk to both parties.

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Asset & equipment finance · Hire purchase · Finance lease