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Old 02-14-2003, 10:00 AM
2LeftGoofyFeet 2LeftGoofyFeet is offline
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Join Date: Jul 2002
Posts: 44

Balloons generally help people get into cars at a lower monthly rate, but delays the inevitable. On a lease or balloon, interest is paid on the total amount less a down payment so that's a wash.
A balloon can be set up to make the monthly payment very attractive but the lower the payment the higher the potential for inequity at the end of the period.
Leases are available open end or closed end. It all depends on who wants to take the risk of predicting the value of the vehicle at the end of the lease. The vast majority of leases are closed end where you can simply turn in the car and walk away which could be advantageous. For example: Banks and other lenders took a beating on SUV leases the past couple of years because SUV's have flooded the market and resale values have dropped significantly. The residuals the lenders used at the beginning of the lease on SUVs were too high and they got caught holding the bag. My company leased a SUV that ended up costing the bank about $6,000. Lease rates on SUV's have climbed considerably lately for this reason.
With a balloon, you are responsible for the outstanding amount at the end of the term. If the car is worth more that the balance due at the end of the term, your ok. If not you're upside down and you'll have to come up with the cash or have to borrow again to keep the car. Another whammy you'll encounter is a lender will not loan you the car's full value. They typically will lend you about 80% of the cars value or use NADA loan values.
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