Balloon Loan
Updated 04/29/2024

A balloon loan is a certain type of loan that does not fully amortize over time. This means that the lien holder does not set a paid-in-full repayment schedule at the outset of the loan period. The borrower is then required to, after an agreed-upon period, pay a “balloon” payment in order to repay the remaining principal balance fully. Many people opt for a balloon loan as it has a short-term repayment period and typically has lower interest rates than longer terms. However, a borrower must be made aware of the risks of refinancing as the loan may reset to a higher interest rate.

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