Balloon loans

The best loan management software

The world of borrowing and lending is a complex one. Just because it is complex doesn’t mean that it has to be difficult to understand. There are many different types of loans, and understanding and recognizing their basic criteria is must have knowledge for both lenders and borrowers. Lenders in any industry have to be flexible in providing a full range of financial products to be competitive with other companies. It is imperative that they can analyze cash flow. They must also analyze their profits produced by different kinds of loans.
There are many different kinds of situations that can be presented when taking out a loan. It is a common phenomenon that borrowers invest a massive amount of time on price shopping and lose the savings based on poor and uninformed decisions. Like most things, each type of loan has its pros and cons. In order to make the right decision, the borrowers have to understand the offered financing options. This will allow them to arrive at the best possible solution for their financing needs.

Balloon loans

Loan assistant software

One of the most common techniques to minimize loan payments is called balloon loan. The most important feature of a balloon loan comes at the end of the payment term. At the end of the term, the borrower will be expected to make one payment that is usually quite a bit larger than their usual month-to-month payment. This allows the borrower to maintain a lower monthly payment. For a real-world example, let’s say the borrower owes $200,000 at an interest rate of 5% on his or her home. The borrower plans to pay this home off in three years. He could choose to pay about $5,994.18 each month. Instead he or she chooses a balloon loan, and pays $3,000.00 each month. At the end of the three-year payment term, the borrower will be expected to come up with the balloon payment of $116,034.46. This would be the remainder of the principal that the borrower did not pay over the three-year period. This arrangement helped the borrower keep his or her loan payments low during the loan term but was required to come up with a lump sum payment at the end of his loan term.

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