What is balloon financing?

Question:

What is balloon financing?

Balloon Financing:

In a traditional loan financing, the principal amount owed is divided up and added to interest to make stable steady payments over the life of the loan. That means that if a loan is taken out for $100,000 over 10 years with 3% interest annually, the payments each year will be $10,300 until the loan is repaid. In some cases, the amount that needs to be borrowed and the amount that can be repaid won't line up and alternatives may be necessary.

Answer and Explanation:

Balloon financing is a loan where only a small portion of the loan is amortized with the bulk of the principal due at the end of the loan in one last...

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