In this article
1. Understand what a balloon actually is
A balloon parks part of what you owe at the end of the loan. On $300,000 financed with a 30% balloon, $90,000 is payable at the end.
The bank still pays your seller the full $300,000.
You’re borrowing that full amount and asking to repay $90,000 (or 30% as your balloon) of it later. You’re not borrowing less.
Interest applies to the outstanding balance, including the balloon, throughout the loan. Because the debt reduces more slowly, you’ll pay more interest than on the equivalent loan without a balloon.
2. Have a plan for the final payment
Three options: sell or trade the asset, pay the balloon from cash, or keep the asset and refinance it.
If selling or trading is the plan, consider whether the asset’s value will cover the balloon and leave equity towards its replacement. If paying cash, think about the working capital you’ll want left afterwards.
If keeping the asset, lenders will generally offer automatic approval to roll the balloon over another one, two or three years if you’ve been meeting your original loan commitments.
3. Match the balloon to the asset’s working life
Think about the hours, kilometres and wear the asset will face - and when you expect to replace it.
Heavy work can reduce its value quickly. A balloon slows debt reduction, so selling during the loan could leave a payout higher than the sale or trade value. You’d need cash to cover the gap.
Compare expected resale with the likely payout at your replacement date, including an earlier exit. Across a fleet, consider a blend: major workhorses may suit faster debt reduction, while lighter-use assets may suit a balloon.
4. Compare the repayments - do you actually need one?
The difference can be smaller than expected. Here are three finance amounts over five years at 8% annual interest, with monthly repayments and no fees.
| Finance amount | No balloon Monthly | 30% balloon Monthly | Monthly saving | Weekly saving |
|---|---|---|---|---|
| $100,000 | $2,027.64 | $1,619.35 | $408.29 | $94.22 |
| $200,000 | $4,055.28 | $3,238.70 | $816.58 | $188.44 |
| $300,000 | $6,082.92 | $4,858.04 | $1,224.88 | $282.66 |
Weekly savings are monthly savings × 12 ÷ 52. The loans have monthly repayments.
The balloons due at the end are $30,000, $60,000 and $90,000 respectively. On $100,000, total repayments are approximately $121,658 without a balloon or $127,161 including it.
Would $408 a month - or about $94 a week - meaningfully help your business? If not, paying down debt faster may be manageable. Compare a modest 10% or 15% balloon too; the saving becomes more significant on larger loans.
Equipment finance calculator.
See how term, rate, balloon and payment timing change the monthly commitment.
Want to compare structures for your next purchase? Reach out to James and Dan anytime.