Balloon Loan

From Open Risk Manual

Definition

A Balloon Loan is a type of Loan where a significant part of the Principal Amount is due and payable in a single payment on the Maturity Date of the Loan.

Issues and Challenges

  • A large balloon amount may imply an elevated Credit Risk at the maturity date, e.g. if the borrower is counting on refinancing the loan and financing conditions deteriorate unexpectedly



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