Balloon Loan

A balloon loan is a certain type of loan that does not fully amortize overtime. This means that the lien holder does not set a paid-in-full repayment schedule at the outset of the loan period. The borrower is then required to, after an agreed upon period, pay a "balloon" payment in order to fully repay the remaining principal balance. Many people opt for a balloon loan as it has a short-term repayment period and typically has lower interest rates than longer terms. However, a borrower must be made aware of the risks of refinancing as the loan may reset to a higher interest rate.