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A balloon loan amortises only part of the principal, leaving a lump sum at maturity. The monthly payment is computed on the loan less the present value of the balloon, which is why the instalment is noticeably lighter than a fully amortising one.
Balloon structure
Payment = PMT(P - B·(1+r)^-n, r, n), with B repaid at maturity
Figures are estimates. Lenders apply their own rounding, fees and eligibility rules, and rates change. This is not financial advice — confirm the numbers with your lender.
Refinancing risk. If credit conditions or the asset's value have moved against you when the balloon falls due, replacing it can be expensive.
The balloon portion stays outstanding for the whole term, accruing interest throughout.