The simplest definition of a balloon payment is a large payment due typically at the end of a loan. Individuals that get a loan with a balloon payment normally do so to have smaller monthly payments.

Loans can differ so some loan types may require balloon payments at specific intervals during the loan payback process or at the end of the loan term. Balloon payments are usually found in home mortgages but sometimes may be part of an auto or personal loan.

As mentioned earlier the benefit of a balloon loan is that the monthly payments may be smaller than with a standard loan. Also the initial down payment amount required and interest rates for the life of the loan may also be less with a balloon payment loan compare to a normal conventional loan.

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