On Tuesday, Auto Financial Group — an online provider of innovative financing products for credit unions and banks — started to offer a vehicle leasing option in addition to its popular walk-away balloon loan program.

The leasing option is available in nine states, with more states coming in the future. Dealerships can take advantage of AFG's new lease program in Florida, California, Michigan, Illinois, Washington, Massachusetts, Ohio, Wisconsin and Pennsylvania.

“We chose specific states around the country where leasing offers a distinct advantage over our walk-away balloon loan program, which has been one of our traditional product offerings,” AFG chief executive officer Richard Epley said. 

“Leasing makes more sense for some consumers in these states, because sales tax laws are more favorable to leasing, and because manufacturers are willing to offer big incentives to people who lease,” Epley continued.

AFG explained that one of the biggest advantages to leasing a vehicle involves the amount of sales tax, which varies by state. In some states, consumers pay sales tax on the total value of the vehicle. In others, the buyer only pays sales tax on his or her monthly lease payment, instead of the total cost of the vehicle, which is considerably lower.

“In most of the states we've chosen, the sales tax is calculated on the monthly payment,” Epley said. “When you buy a car in Michigan, for example, you pay six percent sales tax on the sales price of the vehicle. But, if you lease a car in Michigan, you pay only six percent of the monthly payment.”

Another distinct advantage to leasing a vehicle is being able to take advantage of manufacturer incentives.

“Some manufacturers will use incentives for leased vehicles, which are done on specific models and during specific times,” Epley said. “The incentive can drop the cost by as much as $3,000 per vehicle, which will considerably lower a consumer's monthly lease payment.”

According to Maury Dikker, leasing director for AFG, some credit unions and dealerships will offer both AFG’s lease option and AFG’s Balloon Lending program.

AFG has been offering residual based financing since 1999 and expects to see additional growth with the inclusion of vehicle leasing. 

“We take 100 percent of the residual value risk and completely manage the end-of-term process. The goal is to provide our partners with the best products for their consumers,” Dikker said.

Meanwhile, the balloon lending program can provide institutions with a residual based balloon loan program that is fully insured.

Through AFG’s software, financial institutions are able to secure higher-yielding loans with lower monthly payments for their consumers, mitigate residual value risk, and position themselves to take advantage of the record market increases in residual-value-based financing.