Balloon payment
Solar finance glossary · South Africa
Quick definition
A balloon payment is a single, larger final instalment at the end of an asset finance term, agreed upfront, which allows the regular monthly instalments during the term to be lower than they would be under full amortisation.
It is common in South African vehicle and equipment finance and is used in solar asset finance to bring the monthly repayment closer to, or below, the monthly energy saving. A balloon is expressed as a percentage of the financed amount, typically 10% to 30% for solar equipment, and is set with reference to the asset's expected value at the end of the term.
At the end of the term the customer can settle the balloon in cash or refinance it over a further period. The trade-off is total interest: because less principal is repaid during the term, the overall cost of credit is higher than a fully amortising loan of the same rate and term. Funders assess a balloon against the useful life and resale value of the equipment.
ArkFlow is a software platform that facilitates showing the effect of a balloon on the monthly instalment and the total cost of finance in the proposal.
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Solar Asset Finance Explained: Own Your System From Day One →Solar asset finance, also called an instalment sale, equipment finance or a solar loan, lets you own your system from day one and pay it off over 3 to 7 years.
ArkFlow is a software platform that facilitates solar finance origination. It is not a bank, lender, credit provider, tax adviser or financial adviser. This definition is general information, not a credit offer or advice. Funders make their own credit decisions and tax treatment should be confirmed with a registered practitioner.