BALLOON PAYMENT Meaning and
Definition
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A balloon payment refers to a large and final payment that is due at the end of a loan or lease term, typically in loan agreements or contracts where the periodic payments are insufficient to fully repay the principal balance. It is called a "balloon" payment because it represents a significant lump sum that inflates the overall payment structure, similar to the way a balloon inflates as it fills with air.
In practical terms, a balloon payment allows borrowers to make smaller monthly repayments over the loan term, which are often based on a smaller interest rate or a shorter repayment period. However, at the end of the agreed-upon term, the outstanding balance is due in full, requiring the borrower to pay a significantly larger, final payment to settle the remaining balance.
The concept of a balloon payment is commonly found in mortgage loans, car loans, and lease agreements, where the borrower or lessee can spread out the cost of financing over the loan term or lease period by making smaller payments. This type of payment structure can be advantageous to borrowers who anticipate a significant cash inflow in the future, such as through a salary increase, a bonus, or investment profits, that enables them to make the final payment without defaulting on the loan.
Overall, a balloon payment represents the culmination or "ballooning" of a loan agreement, where the bulk of the principal outstanding is required to be paid immediately at the end of the agreed-upon term.
Common Misspellings for BALLOON PAYMENT
- valloon payment
- nalloon payment
- halloon payment
- galloon payment
- bzlloon payment
- bslloon payment
- bwlloon payment
- bqlloon payment
- bakloon payment
- baploon payment
- baoloon payment
- balkoon payment
- balpoon payment
- balooon payment
- ballion payment
- ballkon payment
- balllon payment
- ballpon payment
- ball0on payment
- ball9on payment
Etymology of BALLOON PAYMENT
The term "balloon payment" originated from the resemblance of the repayment structure to that of a balloon. The word "balloon" here refers to a large inflatable object that expands when filled with air or gas, which is then used metaphorically to describe a payment that expands significantly at the end of a loan term. The balloon payment usually represents a substantial lump sum payment due at the end of a loan, commonly associated with certain types of mortgages or car loans. The repayment plan typically consists of smaller installment payments over the loan term, followed by the final larger payment resembling the expanding shape of a balloon.
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