24 Hour Loans glossary of financial terms

Balloon Loan

A balloon loan is a type of lending product that is usually used for shorter term lending needs than the average loan. This type of loan works very much like a standard loan at first in that you will make regular ? maybe fixed ? repayments for a specific short period of time or number of years. At the end of the designated period, however, a balloon loan will differ from standard loans in that the remainder of the loan that you owe will then need to be paid off in full all at once.

This kind of loan may, for example, be used if you need to buy a property for a specific period of time but you know that you will not be living in it for the long haul and will be reselling it relatively quickly. So, your balloon loan may be set up as if you will be taking it out for 25 years but you will take it out on the condition that the loan will actually be repaid in full after five years. This allows borrowers to take advantage of more cost effective rates and deals.