Definition - What does Balloon Payment mean?
A balloon payment is a payment that is due at the end of a loan, and that is significantly larger than the previous payments. These types of loans are often convenient for people with seasonal incomes, and who have more money available to spend at certain parts of the year.
Justipedia explains Balloon Payment
According to the Truth in Lending Act, a payment that is twice the size or larger of a normal payment is a balloon payment. Also according to this act, lenders must fully inform the borrower if this type of payment is required at the end of their repayment period.
If the Truth in Lending Act did not require this type of disclosure, then borrowers could be caught unaware that they owe a much larger amount of money at the end of their loan. So, the Truth in Lending act helps protect borrowers against surprise balloon payments.
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