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0800 086 9404What Is a Balloon Loan?
Balloon Payments
Balloon Payments in Business Loans
What Are the Benefits of a Balloon Payment?
Summary
What Is a Balloon Loan?
A balloon loan is a form of short-term loan typically used for large purchases or debts. The remaining balance is due in full at the end of the loan term. Balloon loans could be difficult to repay if you're not prepared, so it's important to understand how they work before you opt for one.
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Balloon Payments
A balloon payment is the payment made at the end of a loan's term that is significantly larger than all previous payments. Balloon payments are most commonly found in mortgages but may also be attached to other types of loans.
The balloon payment represents the amount of money the borrower still owes on the loan at the end of its term. For a balloon payment to be made, the borrower must typically agree to make regular, smaller payments throughout the life of the loan. The balloon payment itself is then due at the very end of the loan's term.
Your payment will be a set number, but you can choose to defer some of it until the end of the loan - and the remainder is spread out across the life of the loan.
You can defer payments into one balloon payment at the end of the loan if it helps you to manage your finances better.
Balloon payments can be found in both fixed-rate and adjustable-rate loans. However, they are more commonly associated with adjustable-rate loans, as they give borrowers lower monthly payments during the early years of the loan's term. This can be helpful for borrowers who may experience a temporary decrease in income or an increase in expenses.
Balloon Payments in Business Loans
Balloon payments are also found in some business loans. For example, a balloon loan may be used to finance the purchase of new equipment. The loan may have a relatively short term, such as five years, and a low interest rate. The borrower makes monthly payments that cover only the interest due on the loan. At the end of the term, the entire remaining balance of the loan is due in one lump sum payment (the "balloon"). A balloon loan can be helpful for businesses that need to make a large purchase but may not have the cash flow to do so immediately.
If you need to make a balloon payment at the end of a term, you can refinance this payment through Love Finance.
Refinancing your balloon payments can be an option for you.
What Are the Benefits of a Balloon Payment?
There are several benefits associated with balloon payments. Perhaps the most significant benefit is that they can make monthly payments more manageable for borrowers. This is because the borrower only has to pay a small portion of the loan during the first years of the term when their income is typically highest.
Balloon payments can help you to manage your cash flow better.
Balloon loans can be a good option if you're looking to borrow a large amount of money and have a limited budget. The lower interest rate can help you save money on interest charges over the life of the loan. And, because the loan term is shorter than a traditional loan, you'll be debt-free sooner.
Summary
If you need to make a business purchase but don't have the capital upfront, a balloon payment can be a suitable option for you. It allows you to make the purchase and defer as much as you want until the end of the loan. Doing so helps to protect your cash flow and manage your working capital.
If you are looking to purchase an asset, such as some equipment or a vehicle, or want a straight-up business loan - contact Love Finance today, and you could be approved and funded in a matter of hours.
