Definition of Balloon Payment
A balloon payment is a large amount that is paid when a loan’s term ends. In the case of a bond, the huge payment that is made at the maturity of a bond is called a balloon payment.
The principal amount of a loan is amortized in the loan’s total term and the remaining payment at the end (huge payment) is due.
Balloon payments are more common with the commercial consumers who plan to have a business that requires a relatively huge investment than the normal consumer, as the normal consumer typically can’t make the huge payment at the end of the loan’s term.