| Balloon loans are loans that are set up for one term, | | | | to remember about the balloon payment at the end |
| but are calculated over another term. For example, | | | | of the loan. If you borrow a large amount of money, |
| you as the borrower might take out a five-year | | | | you will likely have to pay a steep amount at the end |
| balloon loan. However, it is calculated over 15 years. | | | | of the term. Although it might seem enticing now to |
| This means the monthly payments are going to be | | | | have low payments, it might be very different when |
| very low. At the end of the five-year term, | | | | you owe $15,000 or more in one payment. As a |
| however, the borrower has to pay off the final | | | | borrower you must think carefully before applying for |
| balance in one large "balloon" payment. | | | | a balloon loan about your ability to afford such a large |
| If you are looking for a loan that allows you to | | | | final payment. Many lenders will scrutinize a loan |
| borrow a large amount of money over a short | | | | application very carefully before underwriting a balloon |
| amount of time but with low monthly payments, a | | | | loan |
| balloon loan will fill that need. Balloon loans can be | | | | Who Should Consider Balloon Loans? |
| used to reduce monthly payments while still | | | | Balloon loans are good for people who know their |
| borrowing the amount of money you require. | | | | income or monetary situation will greatly improve |
| Lower Payments | | | | within the next few years. If you cannot afford large |
| The main advantage of a balloon loan is that for the | | | | payments presently but know that in 2 or 3 years |
| loan term you get extremely low monthly payments. | | | | you will have a lot more money, then a balloon loan |
| If you are looking to borrow a large amount of | | | | could work well for you. However, you do need to |
| money but cannot afford large monthly payments, | | | | be fairly certain that your situation really will improve. |
| then a balloon loan might be worthwhile investigating. | | | | It is a crap shoot. As you see it when rolling the dice, |
| With a balloon loan you can borrow large amounts of | | | | you will make your point, As the lender sees it, there |
| money with the advantage of low monthly | | | | will be a sleek Mercedes sitting in his lot in five years. |
| payments. However, you don't have the extra costs | | | | Refinancing |
| of interest on a loan that lasts 10 or 15 years. | | | | If you come to the end of the loan term and find |
| Typical situations might be trying to come up with a | | | | that you are unable to afford the balloon payment, |
| car payment, arranging a car lease payments, or | | | | you might be able to renegotiate the loan terms and |
| coming up with money to cover down payment and | | | | pay off the rest of the loan in the normal way. |
| closing costs on a home. Balloon loans are extremely | | | | Although terms for this will vary, refinancing at the |
| dangerous. If you the borrower cannot come up with | | | | end of a balloon loan is often possible. However, this |
| funds to pay the balloon when it comes due, the | | | | will end up costing you more money, so if you are |
| lender can foreclose on any property held as security. | | | | unsure about your ability to afford the balloon loan |
| An auto with a low depreciation rate over the short | | | | go for a regular loan instead. Indeed, this is a situation |
| term of the balloon would be a prime catch for the | | | | where you must weigh the risks versus the rewards. |
| lender to repossess. | | | | Repeating what I've said earlier: A balloon loan is a |
| Affording The Balloon | | | | crap shoot. Make sure you have good dice before |
| Although lower payments are a great idea, you need | | | | you come to the gaming table. |