1. What is a Balloon Payment Loan?

A balloon payment loan is a type of loan that has regular monthly payments but requires a large final payment (the "balloon") at the end of the loan term. These are common in car loans where the borrower wants lower monthly payments.

2. How Does the Calculator Work?

The calculator uses the balloon payment loan formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( B \) — Balloon payment amount
• \( n \) — Total number of payments

Explanation: The formula calculates the regular payment amount that will amortize the loan (minus the present value of the balloon payment) over the loan term.

3. Understanding the Formula

Details: The formula first discounts the balloon payment to its present value, subtracts this from the principal, then calculates payments on this adjusted amount.

4. Using the Calculator

Tips: Enter the total loan amount, monthly interest rate (as decimal), balloon payment amount, and number of months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why would someone choose a balloon payment loan?
A: Balloon loans offer lower monthly payments than traditional loans, which can be helpful for those expecting increased income later.

Q2: What happens if I can't make the balloon payment?
A: You may need to refinance the balloon amount, sell the asset, or face default. Understand the risks before choosing this option.

Q3: How is the interest rate entered?
A: Enter the monthly rate as a decimal (e.g., 0.005 for 0.5% monthly or 6% annual ÷ 12).

Q4: Can this calculator be used for mortgages?
A: Yes, it works for any balloon payment loan, though balloon mortgages are less common than balloon auto loans.

Q5: What's the difference between this and a regular loan calculator?
A: Regular loans fully amortize with equal payments; balloon loans have a large final payment after smaller regular payments.