A residual or balloon payment is a one-off lump sum that the borrower agrees to pay at the end of the loan term, in order to reduce the monthly repayments. For example, if the total loan amount was $20,000, the borrower could agree to make a balloon or residual payment of $5,000 at the end of a five-year loan term, which means that only $15,000 of loan principal (plus interest charges on $20,000) would need to be repaid during the first 4 years and 11 months. You would need to compare the sum of your total repayments both with and without the residual payment option, to work out which method was more expensive, and whether it would be worth having lower monthly repayments.