One of your primary considerations should be, once you have
decided on the vehicle you want, to find out the particulars of the
different financing and leasing plans available and then pick the
one that best suits your needs. If you are not sure if you want a lease
or a purchase with a balloon-note, you can ask the dealer to com-
pute the payments on each plan on the same vehicle with the same
amount paid down. All things being equal, the balloon-note
should have slightly higher payments due to the higher amount of
tax being paid up front. However, this is not always the case
because the incentives in the balloon-note deal may be different
from the incentives in the leasing plan. It is important that all
aspects of the program are explained to you by the dealer.
It is also important that the dealer explains to you, and you under-
stand, that it is a balloon-note and that the vehicle will not be paid
off at the end of the contract. You need to fully understand all of your
choices. It is also critical that you read and understand the contract
and any associated paperwork prior to signing the paperwork.
Balloon-note financing is done predominantly by captive (manu-
facturer’s) finance companies such as GMAC, Ford Motor Credit,
Chrysler Credit, etc. Many larger banks such as Chase may also
offer the plan. GMAC calls it “Smart Buy” and has a separate rider
that must be signed in addition to the base contract. Ford’s con-
tract is called a “Simple Interest Balloon Contract,” and
DaimlerChrysler’s contract is called “Fixed Value.” Read the con-
tract carefully – look to the section that lays out the number and
amount of each payment, this may be the only indicator of bal-
loon-note financing. At that spot the contract should show an
additional payment with the large balloon amount.
This is just one more way to obtain a vehicle, but remember that
it is up to you to decide what is best for you. If you do not feel com-
fortable about how the dealer is explaining things or answering
your questions, you do not have to lease or purchase the vehicle. It
is O.K. to tell the dealer you need more time to do research or to
think about whether or not balloon-note financing is the option
for you. In addition, any different terms or arrangements should be
noted in the contract and if they are not there, they must be on a
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