What is Balloon Loan?

A balloon loan is a type of loan often used when purchasing real estate, auto loans or acquiring a business. Interest rates are typically low and payments are made over a short period of time, approximately five to seven years. This is accomplished by requiring one large payment at the end of the lending period called a balloon payment. Balloon loans give the borrower favorable upfront terms, but also create an additional risk of one large payment at the end that maybe difficult to make.

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