Balloon Loan

Definition

A loan whose amortization schedule includes a final payment which is much larger than the previous regular payments. The final payment is often referred to as a balloon payment.

What It Means

In this type of loan, the lender expects to receive a stream of regular payments over a period of time. At the conclusion of the loan term, the lender expects the balance of the loan to be paid off in one, potentially large, final payment. A small business seller’s note may be structured as a balloon loan.