Which of the following describes a balloon payment?

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Multiple Choice

Which of the following describes a balloon payment?

A balloon payment is a large lump-sum amount due at the end of a finance agreement. It’s used to keep monthly payments lower during the term, with the remaining balance paid off in one big final payment. For example, you might have smaller monthly payments to cover most of the loan, but at the end you owe a sizable amount that you can pay now or refinance. This fits the description of a large payment at the end of the agreement, which is why it’s the correct choice. The other options describe different payment features: a small payment at the start sounds like a down payment; a required fee during the term is a recurring fee, not a final lump sum; a payment that increases monthly describes escalating payments over time.

A balloon payment is a large lump-sum amount due at the end of a finance agreement. It’s used to keep monthly payments lower during the term, with the remaining balance paid off in one big final payment. For example, you might have smaller monthly payments to cover most of the loan, but at the end you owe a sizable amount that you can pay now or refinance.

This fits the description of a large payment at the end of the agreement, which is why it’s the correct choice. The other options describe different payment features: a small payment at the start sounds like a down payment; a required fee during the term is a recurring fee, not a final lump sum; a payment that increases monthly describes escalating payments over time.

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