A balloon payment is also called a residual payment. Essentially, it is a lump sum amount that you receive as a borrower. Then, you are required to pay the lender that amount at the end of the loan term. This term is derived from the fact that it is quite inflated in comparison to other payments.
For instance, you applied for a car loan here at Loans Unlimited. The vehicle is worth $40,000, and the loan term is five years, with an interest of 5.44%. The agreed balloon payment is 25% of the loan, which is $10,000.
Your monthly payment will be $617.54 instead of $762.94. As you can see, a balloon payment reduces your monthly repayments. However, you may not save some money due to the accumulated interest.