Question

Read the scenario.

Casey has been saving for a new car and is ready to make a purchase. Having a substantial amount to put down as a down payment, Casey approaches the car dealership. The salesperson and the loan officer view Casey's willingness to make a high down payment positively.

Why would Casey be considered a lower risk by the lender for planning to make a high down payment?

It shows that Casey prefers a high-interest rate.
It shows that Casey is committed to paying off the loan.
It shows that Casey may not need a loan at all.
It shows that Casey might refinance the loan soon.

Answer 1

It shows that Casey is committed to paying off the loan.

Explanation: A large down payment reduces the lender’s exposure (lower loan-to-value) and signals the borrower has more equity and commitment to the purchase, which lowers default risk.