A balloon loan is a type of
loan that requires a large, one-time payment at the end of the loan term. This is in contrast to a traditional amortized loan, where the borrower makes regular payments over the life of the loan that gradually reduce the
principal balance.
Balloon loans can be used for a variety of purposes, including:
- Buying a car
- Starting a business
- Making home improvements
- Consolidating debt
Balloon loans can be attractive to
borrowers because they offer lower monthly payments than traditional amortized loans. However, it is important to remember that balloon loans require a large payment at the end of the term, which can be difficult to afford if the borrower's financial situation changes.