How a balloon payment works
A balloon leaves part of the principal due at the end of the term. Monthly payments fall, but principal is repaid more slowly and interest usually increases. Here the balloon is paid in addition to the last regular monthly payment, so the final month requires both amounts.
M = (P − B × (1 + r)^(−n)) × r ÷ (1 − (1 + r)^(−n)); r = annual rate ÷ 1200
Zero-interest worked example
With $30,000 financed over 60 months, a $10,000 balloon and zero interest, the monthly payment is ($30,000 − $10,000) ÷ 60 = $333.33. The final month also requires the $10,000 balloon. A loan without a balloon would require $500 per month.
Comparing loan offers
Compare total payments, balloon size and how you would repay it. The model uses a fixed rate and monthly periods, excluding separate fees, insurance and early repayment. Refinancing the balloon is not guaranteed and would require a separate assessment.