A loan is an integral part of a property purchase process and the idea to buy commercial property can also remain a dream without availing a loan. So, it’s time to get introduced with the terminology Balloon Payment as it is a process to avail lump sum amount at the commencement of the loan period.
Concept of Balloon Payment
The balloon payment is a process to avail a heavy amount at the beginning of the loan tenure after which the borrower is required to pay back the small amount of EMIs i.e. the Equated Monthly Installments during the loan tenure and have to deposit a lump sum amount of money to close the loan amount. The balloon payment has tenure of 10 years and both the flat and fixed interest rate can be applied on this loan type.
The balloon payment also has some pros and cons. So, have a look at both of them one by one.
- The biggest advantage of a balloon payment is that it makes investment easy and hassle-free in the Indian real estate market. This amount reduces the down payment amount for the purchase of a commercial property.
- The next big advantage of a balloon payment is that the EMIs amount comes crumbling down. The lump sum amount a borrower receives at the start of a balloon payment slashes the equated monthly installments by a huge margin.
- Another big advantage of a balloon payment is the low-interest rate that is levied on the startups and small companies that might face financial crunch in initial stages but can gain profit in the long-term.
The biggest drawback of a balloon payment is that the borrower has to repay a lump sum amount at the end of the loan tenure and collecting a big amount is not possible for every person owning a commercial property.