Balloon Payment Law and Legal Definition

A balloon payment is the final payment needed to satisfy the payment of the entire principal amount, if different from the monthly payment. It is a lump-sum principal payment due at the end of a loan. The final balloon payment is based on the residual value that the lender expects the asset to be worth at the maturity of the loan. A balloon payment follows a series of considerably smaller periodic payments. A balloon payment may be included in the payment schedule for a loan, lease, or other stream of payments.