Jurisdiction(s):
United Kingdom

Key definition

Balloon payment definition

What does Balloon payment mean? A balloon payment is a large final instalment due on a loan or other debt after a series of smaller repayments. It arises where the facility is only partially amortised (for example, interest‑only with principal deferred), so most of the capital is held back and falls due at maturity; this is often described as a partially amortising loan structure. The term is descriptive rather than a defined legal term, and is used across facility agreements, asset finance (including hire‑purchase, PCP and conditional sale), mortgages and commercial lending. Consumer‑credit rules in the UK and Ireland require transparent disclosure of any...

Operating leases: key features, advantages, risk allocation and comparison with finance leases (FRS 102/IFRS 16)

Published by a LexisNexis Banking & Finance expert

Practice notes

This Practice Note examines the principal features of an operating lease and the main benefits of this type of lease when contrasted with a finance or capital lease:

for further detail on finance leases, see Practice Note: Finance Leases
for an outline of the key traits of operating and finance leases, see Practice Note: Lease finance structures
for details on other possible structures, see Practice Note: Alternative Leasing Structures

Characteristics of an operating lease

Under FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland), a lease is classified as an operating lease if it does not transfer substantially all risks and rewards incidental to ownership. In short, any lease that is not a finance lease will be an operating lease. This may occur where the asset is hired on successive short terms that each amount to operating leases, where a break option enables the lessee to end the agreement and walk away, or where the terms include a significant final payment (a ‘Balloon payment’) that the lessee is not contractually required to pay...

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Web page updated on 21/05/2026

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