Also called: Residual value, Residual
Balloon payment
A balloon payment is a lump sum owing at the end of a finance contract after the regular repayments have been made. It reduces the monthly repayment during the term because part of the principal is deferred to the final payment rather than being repaid gradually.
What is a balloon payment?
A balloon payment is a lump sum owing at the end of a finance contract after the regular repayments have been made. It reduces the monthly repayment during the term because part of the principal is deferred to the final payment rather than being repaid gradually.
Example
On a $50,000 vehicle over 60 months with a 30% balloon, $15,000 remains payable at the end; monthly repayments are lower but total interest is higher.
Why it matters
The lump sum must be paid, refinanced or covered by selling the asset, so it needs planning well before the final month.