What is a common risk associated with not making a larger down payment?

Making a larger down payment when purchasing a home or vehicle significantly reduces the amount borrowed. A common risk associated with not making a larger down payment is a higher likelihood of default. This is because a smaller down payment often results in a higher loan-to-value (LTV) ratio, which can place a borrower in a more precarious financial position. If the borrower faces financial difficulties, the smaller equity stake in the property increases the chance that they may be unable to keep up with their mortgage payments, leading to default.

Additionally, a lower down payment may result in higher monthly payments, potentially straining the borrower's budget. Furthermore, borrowers with less equity are at higher risk of being underwater on their loans—owing more than the property is worth—which can exacerbate the likelihood of default when economic conditions change or if the borrower faces unforeseen financial hardships.

Considering this, the choice emphasizing a higher likelihood of default aligns directly with the financial implications of insufficient down payments, while the other options do not accurately reflect the primary risks involved in such a scenario.