What is a balloon payment? — Answers

2 min read

Large final sumAt the end

Lower monthliesThe trade-off

Plan for itThe risk

What it means

A balloon payment is common in asset finance and hire purchase: you pay reduced instalments over the term, then a single large sum at the end to own the asset (or hand it back). It lowers the monthly outgoing because you are deferring a chunk of the cost, but that chunk still has to be paid.

What this means for your company

The risk is reaching the end without the lump sum ready. Plan for it from day one — a sinking fund that builds towards the balloon is the clean way. Options at term end are usually to pay it, refinance it, or return the asset. Model the total cost, balloon included, with the asset-finance calculator before you commit.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

Why would I choose a balloon payment?

To keep monthly payments lower, which helps cash flow, or to match a vehicle's expected resale value so you can hand it back. The trade-off is a large sum due at the end that you must plan for.

What happens if I can't pay the balloon?

You can usually refinance it, sell the asset to cover it, or hand the asset back if the agreement allows. Best avoided by saving towards it during the term rather than being caught short.