Down payment is also termed as margin money in banking parlance. It refers to the contribution of person who purchases as asset; the remaining money has been obtained by availing loan facility from a Bank or any creditor.
The minimum down payment that is required to be made by the borrower differs from bank and also from product to product. Down payment is the stake of the borrower on the particular 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 asset.
The maximum amount that can be credited depends on various factors relating to the customer like his age, income, net worth etc. But the minimum % of down payment that needs to be paid by the borrower is largely uniform.
Let us illustrate this with an example :
Paul found a beautiful house in a good locality. He want’s to purchase this, which costs Rs. 75 lakhs. When he approached the Bank, the Bank would provide upto 85% (Loan to Value ratio), which is Rs. 63.75 Lakhs.
The balance of Rs. 11.25 Lakhs has to paid as “down payment” by Paul himself.
In order to buy a house valued at Rs. 75 Lakhs, Paul need to have cash of 15% as down payment, which is Rs. 11.25 Lakhs.
The downpayment percentage may vary from bank to bank. So it is always better get quotes from different banks before taking your decision.
