Mostly we use two types of payment methods. One is online payment, and the other is offline payment. But apart from these two, there is another payment method too. Moreover, day by day, it is becoming popular.
Whenever a buyer purchases any high-value product, he may wish to buy it by using his credit card. If the product is not that expensive, the shopkeeper may agree to give you the product in exchange for zero cash payment. However, if the product’s price is comparatively high, then generally, shop owners ask the buyer to pay 10% of the total price.
As a result, the buyer may pay the remaining 90% of the total price by borrowing short term loans from the direct lenders of Ireland. Such a new type of payment is known down payment. If you like this concept, then know more about this by reading this entire blog.
What does Down Payment denote?
While purchasing an expensive product, when a buyer asks for credit payment, the shopkeeper or the manufacturer usually asks for 10%-20% of the total market price when purchasing an expensive product.
When a buyer makes such payment, and for the remaining 80% or 90% amount he applies for a loan, then it comes under the down payment process. Actually, the amount which has been paid for applying loan is a down payment.
Generally, people used to give such down payments from their saving accounts. In many cases, the down payment may rise to 70%. However, it strongly depends on the company or business organization from which you are buying the product. Instead of direct lenders, if you wish to take credit facilities from banks, the financial intermediary will decide how much you need to pay as a down payment.
You should know that the monthly installment amount is decided by the financial intermediary or money lenders depending upon your down payment. If you can pay more than 20% in cash, you can pay less monthly installments. Besides, the rate of interest will also come down depending upon your down payment.
However, nowadays, the practice of zero down payments has also started. It is such a practice where the buyer does not need to pay any amount when buying even a high-value product. Not every company provides such attractive offers. To grab the attention of buyers, some manufacturers often launch such offers for promoting their products. Therefore, a buyer needs not to pay any amount while buying a high-value product.
How much Money should you pay as Per the Down Payment?
There is a debate on this fact that how much down payment a buyer should do or what is the ideal amount for a down payment? Perhaps you will purchase a car, and the seller has given you the choice to choose the band for the down payment as per your ability. Now it is entirely on you how much you can afford.
Remember, you need to pay money as a down payment in the form of cash. No other form of money is accepted here. Gradually, when you need cash, there is no option without withdrawing money from either your emergency fund or savings bank account. In such a scenario, it is better to keep back up for handling your bad situation.
But it is also undeniable that if you pay 40% of the total amount as a down payments, the seller will consider it a sizeable down payment. On the other hand, if you pay only 10% of the entire amount, the seller will consider it a small down payment. Small or large, whatever it may be, you have to make a down payment to prove your ability to repay.
But ideally, if you have the ability, it is better to pay a minimum of 25% of the total price as a down payment. So this will lower down your burden and help you to save money even during the repayment tenure.
Benefits of a large amount of down payment
There are so many benefits of a large amount of down payment. Some of the include,
- Low rate of interest
The more you pay during down payment, the less chance of paying extra money as per the interest rate. It is because the borrowing amount will get deducted from your loan amount. As a result, low borrowing amount will offer a minimum rate of interest. So, you can quickly drive out the scope of paying a considerable amount of money extra as per the interest rate.
- Get insurance along with
Usually, when a person buys such a high-value product, then he needs to ensure that by paying for insurance. When a person pays a high amount of down payment, there is less chance of paying an extra amount per the insurance. With a small amount of down payment, such an insurance facility does not come along with that.
- Pay a small amount of monthly installment every month.
When a person pays a large amount of down payment, then it becomes easier for the buyer to repay the loan every month. It is because a low amount of outstanding will not ask you for a considerable amount of monthly installment. Instead, the monthly installment amount will also become lower. As a result, the monthly burden will reduce, and there is less chance of becoming a defaulter.
- Good credit score
You have less amount of monthly installment, so you need not take pain during repayment. When you repay the money without failing even a single one, it will improve your credit score and help you get more loans in the future.
So, what are you waiting for now? Stop lengthening your wish list and start buying things by borrowing money and making down payments.