A balloon financing plan has two stages. The first stage is where you agree to pay a payment over time (usually very low payments and on a short term). The second stage is after you completed your monthly payments you have one last payment, the remaining balance of the car, and you still owe that payment. You can refiance it if you don't have the cash.
ex- if the car your buying is $20,000 and your montly payments are $250 for the first three years, your final payment or balloon payment will be around $13,000. Of course all these numbers are estimates and the reason the balloon payment is higher is because you have to account for interest. In a balloon program, you owe that money.
Leases work the same except after your monthly payments, you have the option to buy the car, if you don't want it anymore, just turn it in.
I would recommend leasing over balloons, there work very similar, but at the end of the low monthly installments, you have more options on a lease.
· 1 decade ago