In a finance lease, when might a balloon payment be due?

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Multiple Choice

In a finance lease, when might a balloon payment be due?

In a finance lease, regular payments are designed to cover the asset’s depreciation plus interest, leaving a remaining value at the end. A balloon payment is that large lump-sum settlement due at the end of the lease to cover the asset’s residual value. It lets the lessee keep smaller regular payments during the term while facing a big final amount if they want to own the asset or settle the lease. Because of this, the balloon payment is something that may be included at the end of the term. It isn’t charged at contract signing, isn’t paid monthly, and isn’t required in every lease (some have no balloon if the residual is zero).

In a finance lease, regular payments are designed to cover the asset’s depreciation plus interest, leaving a remaining value at the end. A balloon payment is that large lump-sum settlement due at the end of the lease to cover the asset’s residual value. It lets the lessee keep smaller regular payments during the term while facing a big final amount if they want to own the asset or settle the lease. Because of this, the balloon payment is something that may be included at the end of the term. It isn’t charged at contract signing, isn’t paid monthly, and isn’t required in every lease (some have no balloon if the residual is zero).

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