Which term describes a loan that employs a payment schedule leading to a final lump sum payment?

The correct term for a loan that utilizes a payment schedule culminating in a final lump sum payment is "balloon." In a balloon loan arrangement, the borrower makes regular payments, typically consisting of interest only or interest and a portion of the principal, until the end of the term. At that point, the remaining balance, which is significantly larger, is due in one final payment known as the balloon payment. This structure is often seen in scenarios where borrowers expect to either refinance before the balloon payment is due or to sell the asset that the loan financed.

In contrast, an adjustable loan refers to a type of loan with interest rates that can change periodically based on changes in a corresponding financial index. A term loan is characterized by a fixed repayment schedule over a specified period, with equal payments consisting of both principal and interest. Interest-only loans allow borrowers to pay only the interest for a certain period, with the principal due later but do not inherently involve a lump sum payment at the end. Thus, "balloon" is the most accurate descriptor for a loan that features a scheduled series of smaller payments leading up to a significant final payment.