What type of payment structure does balloon debt typically have?

Balloon debt is characterized by a payment structure that includes a large final payment due at maturity. This structure typically involves smaller periodic payments throughout the term of the loan, which do not cover the entire amount borrowed. Instead, these payments may only cover interest or a small portion of the principal, resulting in a significant outstanding balance that must be repaid in a lump sum when the loan matures.

This type of payment structure is often used in various financing situations, as it can provide lower initial cash outflows for borrowers, allowing them to manage cash flow more effectively during the life of the loan. At the end of the financing term, however, the borrower must be prepared to pay off the balloon payment in full, which is why understanding this structure is critical for financial planning and risk assessment.