- What is Down payment ?
Down payment is the payment which has to be made mandatorily while purchasing House, Auto Loan etc.
How much down payment is required ?
Down payment percentage varies from banks to banks but on an average starts from 10 % to upto how much one person can contribute while purchasing house/Vehicle.
Why does Down payment mattter ?
I would like to explain this with one example, suppose person A goes for a House loan and total cost is 10 Lakhs, so here 10 % of total cost is 1 Lakhs(min. down payment), remaining amount will be paid via loan. So remaining percentage of house loan will be provided by Banks, that will lead to higher interest payment plus more tenure.
How to plan saving money for down payment ?
Anyone who plans to purchase house/Automobile, first thing he should finalize when he wants to purchase it. This step is very crucial before purchasing. - Let us understand this with an example, assume person A wants to purchase house after 2 years and overall cost of house is 20 lakhs. So first steps is calculating duration for arranging down payment i.e. 10 % (2 lakhs) has to be saved in 2 years i.e. 24 months, so approx. 8340/- has to be saved each month via Recurrent Deposit(safest with minimal risk) in banks/ Post offices.
- There is another approach to save money for down payment, Plan in advance for misc. expenses such as home loan, marriage, Child education etc. For this approach, person has to start investing as early as possible he starts earning money. As we all are aware, Mutual funds are risky but can provide better returns as compared to other methods.
Benefits of keeping aside down payment
Most important benefit of saved down payment fund is a person doesn’t need to go for higher interest rate as very few banks entertain loan amount without down payment, but in return they charge more interest rate.
Another benefit is if a person is able to save more down payment(30-40%) of overall cost, he has to pay less EMIs each scheduled time and less interest, so overall moeny saving.