1. What is a Balloon Loan?

A balloon loan is a type of loan that has lower monthly payments for a set period of time, followed by one large final payment (the "balloon" payment) that repays the remaining principal balance.

2. How Does the Calculator Work?

The calculator uses the balloon loan formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Monthly interest payment (USD)
• \( Balloon \) — Final principal payment (USD)

Explanation: The borrower pays only interest each month, with the full principal due at the end of the loan term.

3. Understanding Balloon Payments

Details: Balloon loans can be useful for borrowers who expect to have more money in the future, but they carry the risk of not being able to make the large final payment.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, and loan term in months. The calculator will show the monthly interest payment and final balloon payment.

5. Frequently Asked Questions (FAQ)

Q1: When are balloon loans typically used?
A: Common for business loans, commercial real estate, and when borrowers expect a future lump sum (like inheritance or bonus).

Q2: What happens if I can't pay the balloon payment?
A: You may need to refinance the loan, sell the asset, or face default. Carefully consider your ability to make the final payment.

Q3: Are balloon loans cheaper than regular loans?
A: They have lower monthly payments but you still owe the full principal at the end. Total interest may be similar to amortizing loans.

Q4: Can I print the payment schedule?
A: Yes, use your browser's print function to print the complete payment schedule.

Q5: Are there alternatives to balloon loans?
A: Consider traditional amortizing loans, interest-only loans with refinancing options, or adjustable-rate mortgages.