3 min read · Updated . Reviewed by James Rock (National Partnerships Director).
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What is a balloon payment?
ANZ’s published loan terms define it as “a lump sum owed at the end of your loan term after all regular repayments have been made”. Moneysmart describes the same structure: you “pay off part of the loan in your regular repayments”, then “pay a final lump sum at the end of the loan”. It’s also called a residual payment.
Balloons are common on equipment finance. business.gov.au notes that dealer finance “can also include a large payment at the end known as a ‘balloon’ or ‘residual’ payment”.
How much does a balloon change your repayments?
| Balloon | Monthly repayment | Balloon at the end | Total interest |
|---|---|---|---|
| 0% | $3,048 | $0 | $32,875 |
| 20% | $2,641 | $30,000 | $38,435 |
| 30% | $2,437 | $45,000 | $41,215 |
| 40% | $2,233 | $60,000 | $43,995 |
Illustration: $150,000 over 60 months at 8.09%, the RBA’s average fixed rate on new small business loans in August 2026, with repayments monthly in arrears.
A 30% balloon cuts the monthly repayment by about $611, from $3,048 to $2,437, but adds about $8,340 in interest over the five years. Try your own numbers in the equipment finance calculator.
Why does a balloon cost more overall?
Because the balloon is never paid down during the term, you pay interest on it every month until the end. Moneysmart’s warning applies to equipment as much as to cars: smaller monthly payments “may look like a good deal”, but “you’ll have to repay the lump sum with interest, so the total cost of the loan is generally higher”.
What happens when the balloon falls due?
ANZ lists the options: “paying the balloon out or applying to refinance the balloon amount (subject to credit assessment)”. Refinancing isn’t guaranteed, so Moneysmart’s advice stands: “be confident you’ll have enough money to pay it when it’s due.”
Why does a balloon make insurance more important?
With a balloon, the loan balance falls more slowly, and the balloon itself is still owed at the end. If the machine is written off partway through, the claim money goes to the lender first: ANZ’s terms let it apply the money to what you owe, and pay any surplus to you. The loan doesn’t disappear with the machine, so whatever the claim doesn’t cover is still owed.
That’s why lenders ask for cover at “the full insurable value” of the machine, and why it’s worth checking how your policy values the machine before you sign.
Questions to ask before choosing a balloon
- Can you pay or refinance the lump sum when it falls due?
- What is the total cost of the loan with and without the balloon?
- If you plan to sell the machine to pay the balloon, what might it be worth by then?
- Does your insurance cover the machine’s full value for the whole term?
Fix the insurance cost for the whole loan
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Frequently asked questions
What is a balloon payment?
A lump sum owed at the end of a loan, after all the regular repayments have been made. It’s also called a residual payment.
Does a balloon payment save money?
No. It lowers the monthly repayment, but the total cost of the loan is generally higher, because you pay interest on the balloon for the whole term.
What happens when the balloon is due?
You pay it out, or apply to refinance it, subject to the lender’s credit assessment.
How much does a 30% balloon reduce repayments?
On $150,000 over five years at 8.09%, from about $3,048 to $2,437 a month, with about $8,340 more interest overall.
What if the machine is written off before the balloon is paid?
The insurance claim goes towards what you owe the lender. Cover can pay up to an extra 30% above the insured value towards a finance payout, but anything it doesn’t cover is still owed. Check your cover matches the machine’s full value.
Sources
- ANZ: Chattel Mortgage Terms and Conditions (02/2025)
- Moneysmart (ASIC): Car loans, balloon payments (updated 24 June 2026)
- business.gov.au: Leasing or buying vehicles and equipment
- Reserve Bank of Australia: Statistical table F7, Business lending rates (published 8 October 2026)
- Product information and approved item list from our specialist insurance partner (August 2026)
General information only, not personal advice. Read the policy wording before you buy.
