Balloon Payment

A balloon payment lets you keep monthly payments lower during the life of the loan, but it comes with a big payoff requirement at the end. They're common in specialty vehicle and marine financing where lenders expect you to refinance, sell the asset, or pay the balance in cash.

How It Works:

• Monthly payments cover mostly interest plus a small amount of principal.
• At the end of the term, the remaining principal becomes due in one lump sum (the balloon).
• Borrowers usually refinance or plan a sale to cover the balloon amount.

Pros:

• Lower monthly payments (can help cash flow).
• Possible to drive or sail a more expensive asset today.

Cons:

• You must plan ahead—balloon can be tens of thousands of dollars.
• Rising rates or lower asset value can make refinancing difficult.
• Missing the balloon payment can lead to default or repossession.

When to Consider:

• You know you'll sell or trade-in the boat before the balloon date.
• You expect a future cash event (bonus, inheritance, business sale).
• You're confident you can refinance and qualify for a new loan.