Finance Calculator
Balloon Payment Calculator
Calculate monthly repayments when a balloon or residual lump sum is due at the end of the finance term. See how the balloon amount affects your monthly costs and total outlay.
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How is balloon finance calculated?
Balloon finance works by deferring a lump sum to the end of the agreement. The monthly payment is calculated on the financed amount minus the present value of the balloon, using the standard annuity formula.
The formula is:
Monthly = [Financed - Balloon / (1 + r)n] — r(1 + r)n / [(1 + r)n - 1]
Where r = monthly interest rate (annual rate — 12), n = number of months, and Balloon = the lump sum due at the end of the term.
Assumptions and caveats
- •A fixed interest rate is assumed for the full term.
- •The balloon payment is due as a single lump sum at the end of the last month.
- •Documentation fees, option-to-purchase fees, and insurance are not included.
- •Total cost of finance will be higher than a fully amortising agreement due to interest on the deferred balloon.
- •Results are indicative estimates only. Contact a provider for a formal quotation.
Frequently asked questions
A balloon payment is a larger lump sum due at the end of a finance agreement. By deferring part of the total cost to the final payment, monthly instalments during the term are reduced. Balloon payments are common in vehicle and equipment finance.
Balloon finance lowers monthly costs, improving short-term cash flow. It suits businesses that expect to refinance, sell the asset, or have a lump sum available at the end of the term. It can also match payments to an asset's useful life or expected income.
If you cannot pay the balloon at the end of the term, options typically include refinancing the balloon amount into a new agreement, selling the asset to cover the balance, or negotiating an extension with the lender. Failing to pay may result in the asset being repossessed.
A larger balloon payment reduces monthly instalments because less of the total amount is amortised over the term. However, the total cost of finance (including the balloon) will generally be higher due to interest accruing on the deferred balance.
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