Can someone please explain them to me in layman terms? I thought they would be a good way to go about getting a loan, but I am told they may not be very smart. I personally thought they were the best way to get a loan. The interest rate was pretty low as well as the payments.

balloon loan

Definition

A long-term loan, often a mortgage, that has one large payment (the balloon payment) due upon maturity. A balloon loan will often have the advantage of very low interest payments, thus requiring very little capital outlay during the life of the loan. Since most of the repayment is deferred until the end of the payment period, the borrower has substantial flexibility to utilize the available capital during the life of the loan. The major problem with such a loan is that the borrower needs to be self-disciplined in preparing for the large single payment, since interim payments are not being made. Balloon loans are often undertaken when refinancing or when a major cash flow event is anticipated. also called balloon note or bullet loan.

Source:
http://www.investorwords.com/398/balloon_loan.html

hey, thanks for clearing that up, feline. the meaning of balloon loans wasn't clear to me too before and i kept wondering what it meant..

The same here, I read the topic's title before but it didn't make sense to me until you brought it back to my attention and found the clue after reading.

Thanks

I can see some endowment policies effectively being a form of balloon loan payment vehicle by this.