Arsenal are expected to wrap up a deal for the Spanish star soon.
Starsport understand Ceballos has rejected interest from Tottenham to sign for their north London rivals instead.
But he’ll only be joining for the season, with the Spain Under-21 star set to return to the Bernabeu the following campaign.
The 22-year-old is keen to make an impression for the Madrid club, and knows playing week-in, week-out in the Premier League will help grab the attention of boss Zinedine Zidane.
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It’s claimed earlier this year Real Madrid were considering selling Ceballos to recoup funds spent on the likes of Ferland Mendy, Eder Militao, Luka Jovic and Eden Hazard.
But they’ve since changed their mind following Ceballos’ impressive displays for Spain at the European Under-21 championships.
Sky Sports reporter Kaveh Solhekol explained the situation on the latest episode of the Transfer Talk podcast.
“Ceballos still believes he can have a major impact at Real Madrid in the future – hence he wants to go back,” Solhekol said.
“Real Madrid wanted to do a permanent deal… but I think their minds were changed when they saw Ceballos perform so well at the European Under-21s”
“But for now, he wants to be happy, he’s been quoted as saying.
“And what would make him happy is playing 40 games next season, and he believes he’ll be able to get that at Arsenal.
“It just needs the final approval of the Real Madrid boss Zinedine Zidane before it officially gets over the line.
“We were of the understanding perhaps Real Madrid wanted to do a permanent deal, and bring in some money, because they’ve spent a lot in this transfer window.
“But I think their minds were changed when they saw Ceballos perform so well at the European Under-21 Championships.”
Ceballos joined Real in 2017 after impressing for La Liga rivals Real Betis.
Unai Emery was asked about the player this summer.
He said: “I don’t want to speak about the names but Ceballos is a very good player.”
Gabriel Martinelli is the club’s only new addition so far.
Wilfried Zaha and Kieran Tierney are other targets for the Gunners, who are set to sign William Saliba from St-Etienne for £25m before loaning him back for the whole of next season.