A balloon payment is basically a lump-sum payment, that is typically the final payment of a loan. Loans that end with balloon payments are generally long-term loans, such as mortgages or car loans. The idea behind them is that if you don’t have a large deposit at the beginning of your loan term, your interest rate and your monthly payments may be very high. The commitment to a balloon payment at the end of your loan cycle helps the lender to reduce both of these to a manageable level for you. Of course, the flip side of this is that you have to ensure that you have the money at the end of the loan period to make the balloon payment – so start planning for this in good time!