Balloon Payment Calculator
Calculate monthly payments and the final balloon payment for balloon loans. Compare balloon loans with fully amortizing loans to understand the differences.
Balloon Loan: Lower monthly payments with large final payment
Amortizing Loan: Equal monthly payments that pay off the loan completely
Payment Schedule
Balloon Loan Summary
Monthly Payment:
$0.00
Balloon Payment:
$0.00
Total Payments:
$0.00
Balloon Payment Date:
N/A
Amortizing Loan Comparison
Monthly Payment:
$0.00
Total Payments:
$0.00
Total Interest:
$0.00
Monthly Savings:
$0.00
Interest Analysis
Balloon Loan Interest:
$0.00
Interest Saved:
$0.00
Effective Rate:
0.00%
Understanding Balloon Payments
A balloon loan is a type of loan that features lower monthly payments for a period of time, followed by a large payment (the balloon payment) at the end of the loan term. This structure can be beneficial for borrowers who expect to have a lump sum available later.
Types of Balloon Loans
Balloon Mortgages
- Typically 5-7 year terms
- Large final payment
- Lower monthly payments
- Common in commercial lending
Balloon Business Loans
- Equipment financing
- Working capital loans
- Shorter terms (3-5 years)
- Flexible repayment options
Balloon Auto Loans
- Vehicle purchases
- Lower monthly payments
- Higher interest rates
- Good for short-term needs
Balloon Personal Loans
- Debt consolidation
- Home improvement
- Medical expenses
- Higher risk for lenders
Balloon Loan vs Amortizing Loan
| Feature | Balloon Loan | Amortizing Loan |
|---|---|---|
| Monthly Payment | Lower | Higher |
| Final Payment | Large balloon payment | Normal payment |
| Total Interest | Lower (short term) | Higher (long term) |
| Cash Flow | Better short-term | Consistent |
| Risk | Balloon payment risk | Predictable |
Balloon Loan Calculations
How Balloon Payments Are Calculated
Monthly Payment Formula
- Based on balloon period, not full term
- PMT = P × [r(1+r)^n] / [(1+r)^n - 1]
- Where n = balloon period months
- Lower than fully amortizing payment
Balloon Payment Formula
- Remaining balance after balloon period
- PV = P × (1+r)^n - PMT × [(1+r)^n - 1]/r
- Large lump sum payment
- Can be substantial amount
Interest Calculations
- Interest accrues on remaining balance
- Lower total interest than long-term loans
- Front-loaded interest payments
- Depends on interest rate and term
Effective Interest Rate
- Higher than stated rate due to balloon
- IRR calculation required
- Accounts for large final payment
- Important for comparison purposes
When to Consider Balloon Loans
Good Candidates:
- Expect lump sum payment later
- Short-term cash flow needs
- Plan to refinance or sell asset
- Business expansion plans
- Investment property purchases
Risk Considerations:
- Large payment due at once
- Refinancing risk if rates rise
- Asset value may decline
- Prepayment penalties possible
- Cash flow disruption
Key Takeaways for Balloon Loans
- Balloon loans offer lower monthly payments but require planning for the final payment
- Calculate the total cost including the balloon payment and compare with amortizing loans
- Ensure you have a strategy for the balloon payment (refinance, sell asset, or pay from savings)
- Consider the effective interest rate, not just the stated rate
- Balloon loans work best for short-term financing needs
- Read all loan terms carefully, especially prepayment and default provisions
- Consult with financial advisors before choosing a balloon loan
- Monitor interest rate trends if you plan to refinance