Balloon payment

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

A balloon is the larger amount left owing at a term loan's maturity because the scheduled instalments deliberately do not amortise the debt to zero. It is legitimate where the financed asset retains real value at the end, or where a credible refinancing genuinely exists; it is dangerous where it is simply how an unaffordable loan was made to look affordable. A credit desk reads every balloon as a deferred credit decision — someone, at maturity, in conditions nobody can see today, must refinance or repay — and asks who is carrying that refinance risk and whether they know it.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.