"The balloon payment lease was much more popular in the early years of the Celtic Tiger than it is now," says Mark Tynan, a Mitsubishi dealer in Clondalkin, Co Dublin.
"If a private customer comes in to me today, and I want him coming back to Michael Tynan Motors for his next car, I won't be pushing him towards a lease with a large 'balloon' (final) payment."The problem lies in the order in which the payments are structured, interest first, capital second. Much of what is paid in the early years goes to interest. "A guy could have a five-year lease with balloon payment, and after two or three years he wants a change. But he finds that he has very little equity in the car. Nearly all his payments have gone to interest so far . . ."
"And look at it this way. The final payment will probably be double the deposit you would have to pay upfront on a conventional loan. If you have to pay €5,000 deposit on a conventional loan, you can be looking at €10,000 of a balloon payment hanging over you, and you are paying interest on it. "
Louis Colley, who runs the leasing operation of MSL, the VW, Audi, Mercedes and Mazda distributor, agrees: "Leasing will become more popular for the private buyer, as it has in the US and Britain, but right now it is primarily a product for business. And some private buyers will be slow to give up on the notion of owning their own cars."
Conal Conneelly, leasing specialist at Belgard Motors in Tallaght, Co Dublin, says that BIK changes last year have led to greater take up of contract leasing by private buyers, but it is a trickle rather than a flood so far. "Contract leasing is essentially hiring a car for an extended period. People avoid BIK by getting an allowance from their employer rather than a company car. You can get a VW Passat on contract lease with annual mileage up to 12,000 for, say, €475 per month for three years. That compares with a hire purchase deal for the same car which would run at about €775 per month." Higher mileage will cost you more. He suggests taking an option to buy the car at the end of the lease period: "If the car is worth more than the option price, trade it in and you make a profit. If it isn't, you just hand it back and walk away. It's an each-way bet."
Dermott Jewell of the Consumers Association has concerns about "balloon" payments: "It is just putting off the evil day. We hear of people who come to the end of the loan period and haven't got the money for the 'balloon' payment. But they need a car so they go back into another loan, and are heavier in debt." He agrees that there are advantages for people who know their finances will improve, like a student just short of graduating, or someone expecting a legacy. The SSIA windfall in 2006-7 may be funding some current car sales, and is expected to unleash a car-buying boom then.
There was an expectation that leasing would replace buying to a greater extent than has happened. Almost everyone I spoke to mentioned that - as with house-buying - the Irish instinctively prefer ownership to renting. The decision to lease remains predominantly one made by companies, or by individuals whose companies no longer wish to run car fleets. And as more companies move in that direction, we may expect to see more leased and fewer purchased cars on our roads. When various players were asked to quantify the proportion of new private cars on the road financed by leasing, there was no consensus.