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What is a Minimum Down Payment?

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  • Written By: G. Wiesen
  • Edited By: Heather Bailey
  • Last Modified Date: 23 August 2016
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A minimum down payment generally refers to an amount of money that must be paid for an investment or purchase. This amount may be the full value of the item being purchased, whether it is a house, vehicle, or stocks in a company, or a lesser value that is viewed as an initial payment with later payments to follow. It will usually be set by the seller of the item and may be standard for all people or may depend on individual factors such as the payer’s credit history. A minimum down payment typically refers to the initial payment made, and later payments toward the full value may be a different amount.

Though a minimum down payment could potentially be made toward a smaller purchase, it is usually utilized for major purchases on high value items. For example, a car that costs $10,000 US Dollars (USD) would be more likely to have a minimum down payment offered for it than a new blender that only costs $20 USD. This payment will usually be set as a certain percentage of the total value of the item, with the following payments being made on an established schedule to pay for the entire thing within a certain time frame.

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The car in this example might have a minimum down payment of $1,000 USD, which is 10% of the total value. This payment is made when the car is leased to a person, at which time a schedule for paying off the remaining $9,000 USD is established as part of the lease for the car, which is a contract between the owner selling the car and the person buying it. The remainder of the balance may be spread out over 10 years and will usually include interest as well as the actual initial value of the vehicle.

Since a minimum down payment for an item is set by the person selling the item, there can be some fluctuation in the amount. This will usually depend on the person buying or leasing the item. A credit check is quite common to determine how likely any financial issues may be for the person making the minimum down payment. Someone with excellent credit may be allowed to make a smaller initial payment or no payment at all, since he or she is seen as being more likely to make timely payments during the lease period. It should also be noted that this is a “minimum” payment, and someone can typically make a larger down payment than is asked for if he or she wishes to do so.

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