i leased and then i bought my car out of a lease so i guess that i can answer most of the questions
no there is not necessarily a balloon payment at the end - you pay per month the total $$ of the car that you will have. for instance, if the purchase price is 10,000 and you lease for 3 years (so 36 mos) then you may that share of the 10,000. so instead of your payment of 10,000 being divided by 60 mos, you pay the portion of the 10,000 that you will use over your lease term (ex: 36 mos or 24 months). of course anyone could write anything into a contract so read it and make sure that there are no balloon payments - the payment schedule should reflect equal payments throughout the lease and it should be written into your contract. btw, always ask for contract forms in advance so that you can read them thoroughly at your leisure so you will know what you are entering into. Then read it again before you sign the actual completed doc to make sure that the other party didn't change anything. if you don't get it ahead of time, you can do like i do and just the person who is breathing down my back trying to explain to me what every provision says so that they can get the contract signed, i just tell them that i'm sorry i'm paranoid and i have to read it for myself and that i don't mind if they go off and do soemthing else while i read. that usually shuts them up. you would be surprised how many people have told me that i am first person to actually read the agreements that i sign. that goes for rental agreements, cellphone agreements, etc. read it.
if you buy it out, you have two options. you can re-finance whatever the balance is for the original purchase price that you negotiated (yes negotiate the purchase price just like when purchasing a car b/c your lease payment is a factor of the purchase price since you pay the % of the purchase price over the term of your lease). the other option is to pay cash. either way, you don't have to have all of the money to purchase your leased vehicle. i financed.
the drawback is that you end up paying more in finance charges than you would if you would have purchased (IF YOU DON'T END UP PAYING OFF THE CAR IN FIVE YEARS). What i mean by that is if you have a 36 month lease, then finance it b/c you want to buy it at the end of hte lease, if you pay it off in 60 - 36 mos, then you pay it off in the same time as someone who purchased but if you extend the period of payoff (which most people do) then the finance charges end up making you pay more for the car.
the advantage is that you get to pay less per month while you are under your lease. i leased b/c i wanted my car payment in the mid to low 200s and was willing to pay it off quickly when i financed it after the lease was over.
another disadvantage is that most leases charge more if you put more than 12000 miles on the car per year b/c that is the average per driver. you can pay more (BUT YOU HAVE TO WRITE IT INTO YOUR AGREEMENT AT THE BEGINNING WHEN YOUR AGREEMENT IS ENTERED INTO) to be able to drive 15000/year and if you don't you pay per mileage over (just like with a cellphone when you go over your contracted number of minutes per month).
another disadvantage - for those who are not trying to keep that much insurance (or none at all) you have to keep a certain minimum with a lease b/c it is technically not your car and the company wants to make sure that the car is covered. it's not anything more than what i think the average person would get anyway but i do believe it is full coverage and not just liability.
my recommendation is to pick up a book on it if you're thinking of doing it (and always negotiate the price - just as if you are purchasing b/c your lease payment depends on the share of the purchase price that you pay). dont' tell them that you want to lease b/c they will start trying to work their magic with numbers. focus on the total price. you can figure out how much you should be paying for a car by getting a book at Barnes and Nobles. Each year, there is a car guide that comes out and tells the price that the dealer paid for the car. I think that the equation is you add what the dealer paid to a "fair" profit (about 3%) and add the advertising fee that the dealer has to pay (usually not more than 200). That is the price that you want to pay. In other words, work your way up to the price - they will want to work down b/c the MSRP is so jacked up that you will still end up paying too much if you work down. Show them your calculation and that you know what they paid. If you are a woman, the men salesmen will get mad b/c you are not a stupid woman but guess what, you can just go to the next dealership. That's another point: go to the biggest dealerships in the city b/c theymake their profit by getting paid by the manufacturer for the number of units (cars) they move off the lot per month - they don't care that much about giving you a 2-3000 deal b/c they are paid for the number that they move. smaller dealerships make their profit off of you so they will squabble with you for every penny. go near the end of the month when they are trying to make their quota and never go on a saturday and go when the weather is bad if possible b/c they won't have done much biz that day and will be more willing to do more biz with you. oh and ladies i suggest wearing a short skirt and heels. yes i said it.
don't tell them that you have a trade-in (b/c they always find a way to "take" the car for what ends up being $$0 - just negotiate the price and say no trade-in and then present the trade-in when you have the negotiated price that you want - in writing.
in fact, i would negotiate, get a price in writing and take it to the next dealership and ask if htey can beat it - they always say yes. after doing this 3 times and negotiating to start with i paid about 14,000 for my 2000 mustang (in 1999).
Boy, have I wasted money on something that isn't mine. 
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