A balloon payment, also called a residual, is a lump sum you pay at the end of the loan. Because you are not paying it off during the term, your regular repayments are lower.
How it works
If you borrow $40,000 with a balloon of $10,000, your regular repayments only pay off the $30,000 portion (plus interest on the whole balance). At the end of the loan, you still owe the $10,000.
Your options at the end
- Pay the balloon from savings
- Refinance the balloon into a new loan
- Sell the vehicle and use the proceeds
Pros and cons
- Pro: lower regular repayments, which can help cash flow
- Con: more total interest, because you owe more for longer
- Risk: if the vehicle is worth less than the balloon at the end, you may have a shortfall
Balloons are especially common in business finance. Your accountant can advise on the tax treatment.
Updated October 2026. General information only; not financial, legal or tax advice.
Ready to find out what you can borrow?
Apply online in a few minutes and a finance specialist will call you.