What is a balloon payment?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A balloon payment is a larger lump sum due at the end of a loan or finance agreement, after the regular repayments have been made. Because part of the amount borrowed is left until the end, each regular repayment is smaller, but the final sum still has to be found when the term ends.
Balloons turn up in finance for vehicles and equipment, such as chattel mortgages, hire purchase and dealer finance. The regular repayments are worked out as if a set part of the amount borrowed will be paid in one go at the end, so that part stays owing for the whole term. When the term ends, the business pays the balloon from cash it holds or arranges other finance to cover it.
In the books, the balloon is part of the loan balance, not a separate debt. Regular repayments only reduce the balance by their principal part, so the loan account should still show at least the balloon amount until the final payment is made. Comparing the loan account with the lender's statement shows whether the balance in the books is right, and putting the balloon's due date in the cash flow forecast means the lump sum is planned for well before it arrives.
In Australia
business.gov.au's glossary calls a balloon payment the last lump sum owed under a loan agreement, and explains that the bigger the balloon, the lower the regular repayments across the loan's term. The same glossary defines a loan's maturity date as the point when its term ends and all outstanding principal and interest fall due.
Its guide to business loans says a hire purchase agreement may let you choose a larger final payment to reduce your instalments. Its page on leasing or buying vehicles notes that dealer finance on a car can finish with a large balloon, also called a residual payment, and points out that the lower ongoing repayments come with a lump sum that has to be planned for at the end of the term.
Worked example
| Item | Amount (AUD) |
|---|---|
| Amount borrowed | 45,000.00 |
| Principal repaid through regular repayments | 31,500.00 |
| Loan balance before the final payment | 13,500.00 |
| Balloon payment at the end of the term | 13,500.00 |
| Loan balance after the balloon is paid | 0.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Leaving the balloon out of the cash flow forecast until the last months of the loan.
- Recording each whole repayment against the loan balance, so the loan account drops below the figure on the lender's statement.
- Overlooking the balloon when listing what falls due in the next 12 months.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Apply for a business loan
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Leasing or buying vehicles and equipment
business.gov.au, Australian Government. Current at 16 October 2026, released 23 October 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.