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What is a balloon payment in asset finance?
Short answer
A balloon payment (also called a residual) is a lump sum due at the end of an asset finance term instead of being paid off in regular instalments. It is calculated on the asset's value, not the amount financed, and the maximum allowed reduces as the term gets longer, from 65% over 12 months down to 30% over 5 years or more.
Last reviewed 8 September 2026 by AssetMX.
Direct answer
A balloon payment, sometimes called a residual, is a lump sum left owing at the end of an asset finance term rather than being spread across the regular repayments. Structuring part of the loan as a balloon lowers the regular repayment amount, because a portion of the asset’s value is deferred to the end of the term instead of being repaid monthly.
How the maximum balloon is set
The balloon is calculated as a percentage of the asset’s value, not the amount financed, and the maximum allowable percentage reduces as the loan term lengthens, since a longer term means more depreciation by the time the balloon falls due.
| Term | Maximum balloon |
|---|---|
| 1 year | 65% |
| 2 years | 60% |
| 3 years | 50% |
| 4 years | 40% |
| 5 years or more | 30% |
Repayments and timing
Repayments on an asset finance facility are made in advance, and the balloon sits outside the regular repayment schedule as a separate final amount.
What happens when the balloon is due
At the end of the term the business generally has three options: pay the balloon out in full, refinance it into a new facility, or sell or trade the asset and use the proceeds to clear the remaining balance. Which option makes sense depends on the asset’s condition and market value at that time.
Where to next
See the full set of end-of-term options at what happens at the end of an asset finance term, or check current rate tiers at asset finance interest rates in Australia.
This is general information only and does not take your circumstances into account. It is not financial, tax or legal advice.
Sources
Related questions
Is the balloon calculated on the loan amount or the asset value?
On the asset value, not the amount financed. This matters because the two figures can differ once fees or a deposit are factored in.
Do I have to pay the balloon in cash at the end?
No. Common options are paying it out, refinancing it, or selling or trading the asset and using the proceeds to clear it.
Why does the maximum balloon get smaller over longer terms?
Because the asset is depreciating for longer, lenders cap the residual lower on longer terms so it still reflects a realistic future value of the asset.
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