What is the use of down payment?

A down payment is an upfront partial payment made when purchasing any asset, ranging from real estate to vehicles, consumer goods, etc. It serves some of the following key purposes:

• Reduces borrowed capital: A larger down payment means a lower amount to be financed through debt. This reduces interest costs over the loan period.
• Signals financial commitment: A substantial down payment shows the buyer's serious intent and financial stake in the purchase.
• Lower periodic payments: With less borrowed capital, regular EMIs are lower.
• Reduces risk for lender: Higher buyer stake implies lower default risk.

Therefore, the down payment plays a crucial role in any significant asset purchase by making it more feasible, affordable and financially prudent for the buyer. To understand how down payment impacts the interest payable and the EMI, use an online down payment calculator.