Longman Dictionary of Contemporary English
n. 1 (context legal English) A payment representing a fraction of the price of something being purchased, made to secure the right to continue making payments towards that purchase. 2 By extension, any initial commitment signifying an intention to carry out a larger future commitment, even though no legal rights or obligations are secured.
n. a partial payment made at the time of purchase; the balance to be paid later [syn: deposit]
Down payment (or downpayment) is a payment used in the context of the purchase of expensive items such as a car and a house, whereby the payment is the initial upfront portion of the total amount due and it is usually given in cash at the time of finalizing the transaction. A loan or the amount in cash is then required to make the full payment.
The main purposes of a down payment are to ensure that the lending institution has enough capital to create money for a loan in fractional reserve banking systems and to recover some of the balance due on the loan in the event that the borrower defaults. In real estate, the asset is used as collateral in order to secure the loan against default. If the borrower fails to repay the loan, the lender is legally entitled to sell the asset and retain a portion of the proceeds sufficient to cover the remaining balance on the loan, including fees and interest added. A down payment in this case reduces the lender's risk to less than the value of the collateral, making it more likely that the lender will recover the full amount in the event of default.
The size of the down payment thus determines the extent to which the lender is protected against the various factors that might reduce the value of the collateral, as well as lost profits between the time of the last payment and the eventual sale of the collateral.
Furthermore, making a down payment demonstrates that the borrower is able to raise a certain amount of money for long-term investment, which the lender may desire as evidence that the borrower's finances are sound, and that the borrower is not borrowing beyond his or her means.
If the borrower is unable to pay off the loan in its entirety, he/she forfeits the down payment amount.
Usage examples of "down payment".
The house Shannon and I lived in sold almost immediately, so I had my split of the money from that as a hefty down payment and that got the mortgage payments down into the reasonable range.
She was going to have to find a lender for that, too, or have no down payment for the ship repairs.
The partners now had enough money for a serious down payment on an oyster dredger, but before they made a contract with any boatbuilder, Jake wanted Tim to sail aboard one of the Deal Island innovations, so they shipped with a mean-spirited gentleman from that island, and Tim came home convinced that no boat but one of that type would satisfy him.
The coachman had received an enticing down payment on the understanding that his services were to be performed with confidentialitynot that the noble lady passenger had held a clandestine tryst in the woods with a bucolic lover, of course.
Given his utmost discretion, the pecuniary reward at the end of the journey would exceed even the down payment.
On receiving Shannon's down payment of $7200 and the End User Certificate, he had gone to a licensed arms dealer for whom he had occasionally done work in the past on a subcontractual level.