Down Payment

DEFINITION of 'Down Payment'

A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller.

Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.

BREAKING DOWN 'Down Payment'

For example, because houses are extremely expensive assets, home buyers typically pay down payments that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank or other financial institutions through a mortgage loan.

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