A balloon loan sets your payments as if the loan ran for a long time but makes the remaining balance due much sooner. You get lower payments during the term and a large bill at the end.
Balloons show up often in commercial real estate and some equipment deals. Owners usually plan to refinance the balloon rather than pay it in cash, which works only if rates, property values and the business cooperate when it comes due.
Example: $100,000 at 10%, amortized over 10 years but due in 3, is $1,321.51 a month. After 36 payments, you still owe $79,603.20 in one lump sum.
Put the balloon date on the calendar well ahead and start the refinancing conversation early.