My friend told me he was saving up to buy a new magic carpet.

This joke takes flight on a clever bit of wordplay, specifically a pun that plays on the double meaning of "down payment." In the real world of finance, a down payment is an initial sum of money you pay when buying something expensive, like a house or a car, to secure the purchase. It's a standard step in acquiring big-ticket items, even if those items don't actually fly.

The humor lands when we apply this very grounded financial term to something as fantastical as a magic carpet. The punchline suggests the friend should "put a down payment" on the magic carpet, not just as a financial transaction, but also as a literal instruction to press down on the carpet for it to work or perhaps to keep it from flying away before it's fully paid for. This absurd collision of the mundane and the magical, coupled with the linguistic twist, is what makes the joke soar.