I'm no financial wiz, but here's what I've heard. (archive)

My understanding of a balloon as opposed to a tradtional lease is: With a baloon, you're still being approved for the full price of the vehicle, but deferring a percentage of the price based on the residual set by the bank. For instance, you might pay $30k over three years for a $60k car, plus interest. After that you could refinance the rest or trade it in. The difference with a balloon is that you could actually have some equity, whereas with a standard lease, you'll never get equity. With a standard lease, you're just renting the car, there are lots of fees and you're bound to that contract for that length of time. With a balloon you're just spreading out paying for the car over a longer period of time with an option get out of it entirely after a set period of time. With the ballon you can trade it in or sell it at any time, you just might be upside down payment wise, if you haven't had it long enough to have gained any equity.

Others on this board may have better info, that's just a layperson's description of what I understand it to be...

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