Balloon Payment

A balloon payment is a larger-than-normal final payment on a loan or lease, paid after a series of smaller regular payments. In auto financing, a balloon payment arrangement can make monthly payments more affordable since a significant portion of the principal is due at the end. Some Canadian dealers offer balloon financing or residual financing plans, which are similar to leases: the buyer has lower payments and then a choice to pay off or refinance the remaining balance at the end. It’s important for dealership staff to ensure customers understand the final lump sum due, to avoid surprises at loan-end.