May 17, 2018

What is Down Payment, one should know?

Down Payment


Down payment is also called as margin money in banking terms. It refers to the contribution of person who purchases property / asset the remaining money has been obtained by availing loan facility from a Bank or any Financial Institution.  
The minimum down payment which is required to be made by the borrower varies from bank and also from product to product.

Down payment is the stake of the borrower on a particular property / asset. It is taken as a surety that the borrower loss a considerable amount of money in case he defaults in repayment and the Bank seizes the property / asset.
The maximum amount that can be credited depends on various factors like customer's age, income, net worth, existing liabilities, etc. But the minimum % of down payment that needs to be paid by the borrower is largely uniform across banks and financial institutions.

Let's understand from an example :

Mr. ABC found a wonderful house in good locality. He want’s to purchase this property, which is costing Rs. 75 Lakhs. When he approached the Bank, the Bank would provide upto 85% (Loan to Value), which is Rs. 63.75 Lakhs.
The balance of Rs. 11.25 Lakhs has to paid as “down payment” by Mr. ABC out of his own pocket.
In order to buy a property / asset valued at Rs. 75 Lakhs, He needs to have cash of 15% as down payment, which is Rs. 11.25 Lakhs.
The down payment percentage may vary from bank to bank. So, it is always better get quotes from different banks before considering purchase of property / Asset.

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