What Should the Down Payment be?
After you have decided you can afford to make a purchase on credit, you will have to decide how much you have available to make as a down payment. The best thing to do is to make as substantial a down payment as possible without upsetting the family’s budget. The larger the down payment, the smaller the unpaid balance and the finance charge will be.
There is, however, no purpose in making a down payment so large that it robs the food budget or makes it difficult to meet the next regular monthly payment when it comes due. It would be better to make a small down payment on a purchase than to borrow money to make a larger deposit. Here nothing would be accomplished except to muddy the waters with the problem of repaying the loan as well as making payments on the installment contract.
There may even be a good reason to purchase on the installment plan without any down payment, if possible. You probably would not put a down payment on a furniture purchase. You would figure on how much you would have to pay for the term of the account and if that payment fits in your budget, you can make the purchase without a down payment.
Generally speaking, a down payment should be at least 10%, but this is “rule-of-thumb, for it should often be 25% or even more. If the seller requires a specific down payment, make sure you can make it without a strain on your budget before you make your purchase.
Remember, the larger the down payment, the more quickly, easily, and cheaply the rest of the account will pay out.