What type of loan allows a borrower to make payments and then a large final payment at maturity?

A balloon loan is characterized by its repayment structure, in which the borrower makes regular payments for a specific period, typically consisting of both principal and interest, and then faces a significantly larger final payment at the end of the term. This final payment, known as the "balloon payment," is often much larger than the preceding payments and represents the remaining balance of the loan, which is due all at once. Balloon loans can be attractive due to lower monthly payments throughout the loan term, but they require the borrower to be prepared for a substantial payoff at maturity, which can pose a risk if the borrower is not financially ready.

In contrast, a fixed-rate loan provides consistent monthly payments throughout the life of the loan without any large final payment. An adjustable-rate loan features interest rates that can change over time, often leading to variable monthly payments, but it doesn't inherently include a large final payment. An interest-only loan allows borrowers to pay only interest during an initial period; however, at the end of that term, the borrower must begin paying off the principal, which can also result in a large payment, but it typically does not fit the standard definition of a balloon structure where the full balance is due at maturity.