Whether you’re taking out a morgage or a car loan, you’ll probably come across the term down payment. What does it mean, what is the amount and what is a down payment?
What does it mean
By deposit or accurual (or also prepayment) we mean a partial payment in advance, often referred to as a non-refundable advance. It is usually the first increased instalment of the purchase price, and is particularly common in leasing or hire purchase.
How does the down payment work?
Do you want to buy a property, a car or something else, but you don’t have enough money saved up and want to finance it with a mortgage, lease or loan? Expect that you’ll probably have to pay some of it out of your own pocket anyway and pay a down payment, which is usually a percentage of the total amount.
The higher the down payment, the better the conditions for the client and the bank. Such a loan is less risky for the bank and it can afford to offer better terms to the client. However, you can also find a mortgage without a down payment, which has replaced a 100% mortgage.
For mortgage loans, the down payment is the portion of the property price that the applicant must pay out of pocket. In the case of building society loans, the down payment is the amount that the client must save before the building society will grant the loan.