How a balloon loan works
A balloon is a lump sum you owe at the end, agreed at the start. The monthly payments repay the rest of the loan plus interest on the whole amount, including the balloon, so they're lower than on a normal loan.
The calculator turns the APR into the matching monthly rate, using the APR definition in FCA CONC App 1.2, then sets the payment so the balance left at the end is exactly the balloon.
Worked example
You borrow £20,000 at 9% APR over 4 years with an £8,000 balloon. You pay £354.28 a month, then the £8,000. The total repayable is £25,005.53, so the interest is £5,005.53.
With no balloon the payment would be £494.37 a month. The balloon lowers each payment but costs more interest, because you owe more for longer.
Balloons on car finance
On personal contract purchase (PCP) the balloon is the optional final payment, often set at the car's guaranteed future value. You can pay it to keep the car, hand the car back, or part-exchange it. On hire purchase with a balloon you must pay it to own the car, but you can end the agreement early and hand the car back; once you've paid half the total amount payable, you won't owe anything more.
What this calculator assumes
A fixed APR, equal monthly payments and no deposit or fees. Lenders often build payments from a nominal rate and quote the APR, so their figure may differ by a few pence. Option-to-purchase and document fees aren't included.
Borrowing in the US?
The country choices above the inputs open separate local pages. US balloon loans usually work the other way: payments are set over a long amortization and the balance left after a few years is the balloon. Choosing United States opens that page and resets the inputs; amounts are not converted.
For the US version, use the US balloon payment calculator in US dollars.
Inputs for the UK balloon loan calculator
Amount borrowed
The amount of credit in pounds, after any deposit.
APR
The APR on your quote. We turn it into the matching monthly rate.
Term
How long until the balloon is due, in years.
Balloon payment
The final lump sum from your quote. Enter 0 for a normal loan.
CALCULATOR QUESTIONS
UK balloon loan calculator questions
How is a balloon payment calculated?
The payment repays the loan less the balloon's value today, at the monthly rate. The balloon itself is repaid in one go at the end.
Is a balloon loan cheaper?
Each month, yes. Overall, no: you pay interest on the balloon for the whole term, so total interest is higher.
What if I can't pay the balloon?
On PCP you can hand the car back, and on hire purchase you can end the agreement early. On other loans you may need to refinance or sell the asset, so plan for it from the start.
Can I pay the balloon early?
Usually. Early repayment is your right on regulated UK credit, though a small charge may apply.