01
Settle it from cash
The cheapest exit, and it requires the money to be there. A business that treated the balloon as a known future obligation and set aside against it takes this one.
Calculator
What a balloon defers to the end.
A balloon lowers the payment by leaving part of the amount unrepaid until the final day. This page shows how much it lowers it by, and what is waiting at the end.
Last reviewed 8 September 2026
Indicative repayment
Weekly
$418/week
$1,809 /month $16,841 total interest
$70,000
$5,000 $500,000
4 years
6 months 5 years
11.00% p.a.
8% (secured) 30% (unsecured)
Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.
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Your $70,000 scenario
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Redirecting…
What a balloon is
Deferred principal, not a discount.
A balloon, also called a residual, is an amount of the original finance that is deliberately not repaid across the term. It sits at the end as a single lump sum. Because less principal is being amortised, every payment before it is smaller, which is the whole reason the structure exists.
Nothing is being forgiven. The balloon accrues interest along with everything else until it is paid, so a facility with a balloon costs more in total than the same facility without one. What the business gets for that extra cost is a lower commitment through the term, and whether that trade is worth making depends entirely on what happens on the day the balloon falls due.
The three exits are always the same. Settle it from cash, refinance it over a further period, or dispose of the asset and settle from the proceeds. A business that knows which of those it intends before signing is in a very different position from one that finds out at the end.
Common residual band
20% to 40%
Effect on payment
Lowers it
Effect on total cost
Raises it
Falls due
On the final day
The effect
The same $70,000 at four residual levels.
Illustrative on stated assumptions, at an indicative 11% over 48 months. The payment column is what the schedule amortises; the balloon column is what falls due at the end. Not an offer of credit.
| Residual | Amount amortised | Indicative weekly | Balloon at the end | Indicative total cost |
|---|---|---|---|---|
| None | $70,000 | ~$417 | Nothing | ~$86,800 |
| 20% | $56,000 | ~$334 | $14,000 | ~$89,400 |
| 30% | $49,000 | ~$292 | $21,000 | ~$90,700 |
| 40% | $42,000 | ~$250 | $28,000 | ~$92,000 |
Illustrative effect of a residual at an indicative 11% over 48 months. Figures rounded, and not an offer of credit.
Reading that table
A dollar of balloon buys about a dollar of payment.
Moving from no residual to 40% takes roughly $167 a week off the payment and adds roughly $5,200 to the total cost, while leaving $28,000 due on the final day. Every row is a variation on the same trade and none of them is a saving.
The useful way to read it is as a cash-flow instrument. A business whose constraint is the weekly figure is buying breathing room and paying for it, which is a rational thing to do when the alternative is not being able to acquire the asset at all. A business with room in its cash position is paying for something it does not need.
The line worth looking at hardest is the last column of the row being considered. That figure only holds if the balloon is settled from cash on the day. Refinancing it extends the interest further and raises the real total beyond what the table shows, which is why an unplanned balloon is more expensive than a planned one even at the same headline residual.
The three exits
What happens when a balloon falls due.
All three are ordinary. They differ in what they cost and in whether they were chosen or arrived at.
02
Refinance it
A further facility over the balloon amount. Available readily and the most expensive of the three, because interest continues on an asset that is now several years older.
03
Sell or trade the asset
The proceeds settle the balloon. This works cleanly where the asset is worth more than the residual and produces a shortfall where it is not, which is what a residual set too high creates.
The residual that was set too high
When the asset is worth less than the balloon.
A residual is a prediction about an asset’s value at the end of a term. Set sensibly, the asset covers the balloon and a trade produces a surplus. Set optimistically, the asset is worth less than the amount owing on it, and the business cannot sell its way out without writing a cheque. That position is not visible during the term, because the payments are comfortable and the asset is working, which is exactly what makes it worth checking against realistic market values before signing rather than at the end.
What it excludes
Four things the figure does not include.
The calculation is a standard amortising schedule on the amount, rate and term entered, and nothing else. Establishment and documentation fees are not in it, and on smaller amounts a fee of a few hundred dollars moves the effective cost more than a percentage point of rate does.
A deposit is not in it either. Where a deposit is being paid, the amount to enter is what is actually being borrowed rather than the price of the asset, and the difference is the most common reason a calculated figure and a quoted one disagree.
GST is not in it. Under a hire purchase the amount financed is normally the GST-exclusive price, with the GST generally claimable in the return covering the period the agreement begins, subject to the accountant’s confirmation of the accounting basis used. Entering a GST-inclusive figure overstates the payment.
A residual or balloon is not in the amortising figure. On a lease or a balloon structure the residual is not repaid across the term, so the real payment is lower than a plain amortising calculation shows and a lump sum falls due at the end. The balloon calculator on this site is the one built for that.
Indicative only
This is a calculation, not a quote.
Nothing here is an offer of credit and no rate shown is available on request. The rate a business is charged is a function of its trading history, the asset, any deposit, the term and the lender’s credit assessment together, and only the lender sees all of those. Every figure this page produces is indicative and based on the inputs shown. Actual rates, fees and repayments are set by the lender after assessment.
References
Sources
- Inland Revenue, GST on hire purchase and leases
Backs the note that the calculator works on the GST-exclusive amount financed under a hire purchase.
- Inland Revenue depreciation rate finder
The published source for the depreciation treatment referred to alongside the figures.
- Reserve Bank of New Zealand, interest rate statistics
Context for why indicative rate bands move over time rather than being fixed figures.
FAQ
Balloon and residual payments, common questions
What is a balloon payment?
An amount of the original finance deliberately left unrepaid across the term, falling due as a single lump sum at the end. Because less principal is amortised, every payment before it is smaller. Nothing is forgiven, and the deferred amount carries interest until it is settled.
Is a balloon the same as a residual?
In practice they describe the same thing from different directions. Residual is the more common word on a lease, where it represents the asset’s expected value at the end. Balloon is more common on a loan or hire purchase, where it is simply a deferred portion of the principal.
Does a balloon make the finance cheaper?
It makes the payments lower and the total cost higher, because interest accrues on the deferred amount for the full term. Whether that is worth it depends on what the lower payment enables. Buying room in a tight cash position is a real benefit; paying for the deferral when the room was not needed is not.
What size residual is typical?
Twenty to forty per cent is the band most commonly seen on New Zealand asset finance, informed by what the asset is expected to be worth at the end of the term. Lenders have ranges they will write within by asset type, because an unrealistic residual creates a security problem for them as well as a cash problem for the borrower.
What happens if I cannot pay the balloon?
The usual path is refinancing it over a further term, which is offered readily and is the most expensive of the three exits. Selling or trading the asset also settles it, and works cleanly only where the asset is worth more than the amount owing. Raising it with the lender before the date rather than after leaves more options open.
Can the balloon be settled early?
It depends on the agreement, and many allow it. Some carry an early settlement fee or, on a fixed rate, a break cost calculated by the lender. Asking what early settlement would cost before signing takes one question and removes an unwelcome surprise at the point a business has cash available.
Should a balloon be used to make an asset affordable?
It genuinely can be, and it is worth being clear about what is happening. The balloon makes the asset affordable now by moving part of the cost to a date when the business hopes to be in a stronger position. Where that expectation is well founded it is sound. Where it is a hope rather than a plan, it postpones a problem and adds interest to it.
Does the tax treatment change with a balloon?
The structure determines who is treated as the owner and therefore where the depreciation claim sits, and a balloon does not change that by itself. The interest component of the payments is ordinarily deductible under a hire purchase while the principal is not, subject to the accountant’s confirmation. All of this is subject to the accountant’s confirmation on the specific arrangement.
Related
Keep exploring
Hire purchase calculator
The same asset with nothing deferred.
Read onLease against buy calculator
Where a residual sits inside a lease rather than a loan.
Read onHow residuals and balloons work
The mechanism in full, including how lenders set them.
Read onBalloon and residual structures
The structure page, and where it fits.
Read on