Balloon Loans: Lower Payments Now, a Big Bill Later
A balloon loan trades a lower monthly payment for one large final payment. Understanding that trade-off is essential before signing.
What is the Balloon Payment Calculator?
In a balloon loan, the regular payments are calculated as if only part of the loan is being repaid, and the remaining balloon amount is due in one lump sum at the end. The calculator discounts the balloon back to today's value, subtracts it from the loan, and applies the standard loan formula to the rest, so the monthly payment is lower than a fully repaid loan but a large sum remains due.
How to use it
- Enter the loan amount and the balloon payment due at the end.
- Enter the annual interest rate and the term in months.
- Press Calculate to see the monthly payment and the total interest.
Worked example
Loan 20000, rate 6%, term 60 months, balloon 5000: monthly payment about 314.99, balloon due 5000, total interest about 3899.52 (payments plus balloon minus the original loan).
Is a balloon loan cheaper overall?
Not usually. The monthly payments are lower, but interest still accrues on a balance that falls more slowly, and the balloon itself must be paid or refinanced at the end. The total interest shown by the calculator, plus the balloon, is the fair comparison against a standard fully repaid loan.
Frequently asked questions
Why is the monthly payment lower?
Because the payments only repay part of the loan. The rest is deferred to the balloon payment, so you pay less each month but owe a large amount at the end.
What happens at the end of the term?
You must pay the balloon in full, refinance it, or sell the asset to cover it, so plan for that sum well before it falls due.