Definition: A loan that requires a single, usually final, payment that is much
greater than the payment preceding it
Though balloon loans are usually written under--and called
by--another name, you can identify them by the fact that the full
amount of the loan is turned over when the contract is signed, but
only the interest is paid off during the life of the loan, with a
"balloon" payment of the principal due on the final day.
Occasionally, a lender will offer a loan in which both interest and
principal are paid with a single "balloon" payment. Balloon loans
are usually reserved for situations when a business has to wait
until a specific date before receiving payment from a client for
its product or services. In all other ways, balloon loans are the
same as installment loans.