Promissory Notes

Installment Promissory Note with Final Balloon Payment - Example

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Installment promissory note with final balloon payment requires you to make equal payments on a regular basis for a fixed time. Each payment includes principal and interest, and is lower than otherwise would be (as in standard installment promissory note).

The loan is fully paid off only when the lender makes one final large payment at the end of the term (balloon payment). That is, the last balloon payment will include the rest of the principal and the interest.

This type of repayment schedule can be used when the borrower does not have enough income to pay more for the time being, but expects to receive a large amount of money later.

For example, you need to borrow $20,000 at 5% interest from one of your closest friends and will pay back in three years. With amortization table, your monthly payment is $600. You can’t really afford this much payment now because you only have a part-time job. But you know you will receive some money enough to pay back from your family in three years. So your friend agrees that you make a smaller monthly payment as if it were a 8-year loan ($254) and pay back the remaining principal and interest ($10856) at the end of the term when you receive the money from your family. This way, your monthly payment is affordable until you make one large final payment at the end.