Here is an article from NYSTLA's website (NYS Trial Lawyers Assn)
Buying a car? Consider “Balloon Financing” Instead of Leasing
Last year, GM, Ford and Honda suspended leasing vehicles in New York State. They did this to pressure state lawmakers into repealing a long-standing law that makes sure that car owners are ultimately responsible for their car if it is involved in an accident that hurts others.
Fortunately for consumers, all three automakers now offer New Yorkers a very good leasing alternative called balloon note financing. As with leases, balloon financing plans like GM's SmartBuy and Ford's Red Carpet Option typically offer lower monthly payments than conventional financing does, allowing you to upgrade to a more expensive car.
One of the greatest attractions of either plan is that you can bring the vehicle back and simply walk away at the end of the loan term or lease without paying anything except, possibly, a "disposition fee." Or you can keep the vehicle by making a lump sum payment -- either the final, large "balloon" payment or, for leases, paying off the car's "residual value." Since both balloon plans and leases base their monthly payments on an estimate of how much the car will be worth at the end of the term -- the residual value -- consumers pay a very similar amount to keep the car under either plan.
The biggest difference between the two plans is that with balloon financing you actually own the vehicle while, when you lease, an automaker's finance arm like GMAC or an independent leasing company keeps the title. It's true that you pay sales taxes on the full value of the vehicle when you balloon finance and on only the down payment and monthly lease payments when you lease. But to ensure that they don't lose any sales by suspending leasing, the automakers are covering the difference. When all the fees and financing costs are considered, balloon financing and leasing costs about the same.
Owning a car instead of leasing it has some distinct advantages. If you are self-employed, you may be able to deduct the depreciation of the car from your taxes. If you drove it less than you expected and kept it in tip top condition, you may be able to sell the car on the market for more than the balloon payment and pocket the difference.
GM, Ford and Honda dealers report that the switch from leasing to balloon financing hasn't made any difference to their customers or in their sales volumes. As Tom Selkis, owner of Latham Ford in Albany County, told the Albany Times Union last year, "The way things are going for us, I don't care if the leasing comes back at all...We might as well stay with what we've got because it's been well-received by customers".
Leasing and balloon financing may allow drivers with beer pocketbooks to indulge their champagne tastes, but both plans have pitfalls to watch out for. For example:
• Agreements typically allow you to drive 12,000 or 15,000 miles a year before incurring excess mileage charges, which can add up quickly. At 20 cents a mile, driving 3,000 miles more than the annual limit will cost $600. Make sure you can live within the mileage limits you choose.
• If you do not keep the vehicle in tiptop condition, when you return it you may be hit with charges for wear and tear beyond what the agreement calls "normal."
• Don't get distracted by the low monthly payments trumpeted in advertising. These are bait to get you in the showroom door. You need to realistically assess the total cost of the lease or balloon note purchase, including up front costs like deposits as well as the residual value. Always negotiate starting with the purchase price of the vehicle, not the monthly fees.
• If you're leasing, be aware of the "lease acquisition fee," sometimes referred to as a "bank fee," "lease inception fee," or "administrative fee." At most leasing companies, this fee comes to hundreds of dollars and some charge more than $1,000.
• Many leases have clauses that require you to keep matching tires on the car. If you had a flat and can't replace the tire with a duplicate, you will be charged for four new matching tires at the end of the lease.
Consumers should keep in mind that leasing is still available in New York from many car dealers but should seriously consider the balloon plan as an alternative.
While the legislature debates whether or not to change the "vicarious liability" law for leasing companies, the New York State Trial Lawyers Association continues to believe that all car owners should ultimately be responsible for their property. The alternative is to leave an accident victim without access to any responsible party when the accident involves a leased car and the driver is uninsured or underinsured. With only 215 "vicarious liability" cases pending last year out of over 700,000 leases, according to trade publications, the cost to the leasing industry for this essential public protection is minimal.
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