Difference between deposits and down payments

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What is the difference between a deposit and a down payment? Let’s break it down:

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Deposits vs. down payments


A deposit is money given to an automotive business to secure a vehicle. It usually means a consumer is interested in buying and wants the vehicle to be put on hold for them. A deposit can:

  • Prevent others from buying the vehicle before you have a chance to view it.
  • Hold the vehicle if you are from out of town and wishing to buy the vehicle before someone else does.
  • Allow you to secure financing elsewhere before returning to buy the vehicle.

A consumer could put a deposit down and not buy a vehicle. If they change their mind they would most likely lose out on the deposit.

The law does not require an automotive business to refund a deposit. A consumer should always ask if the deposit is refundable or non-refundable, under what terms and conditions, and get it all in writing.

A consumer could use AMVIC’s optional deposit agreement form when shopping for their next vehicle.

Things to remember:

  • A consumer should never have to put a deposit down to view or test drive a vehicle.
  • It is up to the consumer if they wish to secure the vehicle first to prevent others from buying the vehicle.
  • If the consumer is not yet serious and just wants to view the vehicle, an automotive business cannot force the consumer to put a deposit down.
  • The deposit can go towards the cost of the vehicle, which is good to keep in mind when budgeting.

Down payments:

A down payment is a commitment to purchase the vehicle and the money will lower how much needs to be financed. It also allows the financer to get some compensation upfront.

Down payments happen when the purchase is already going through. The down payment must be written on the bill of sale, and the money is handed over to the automotive business either in cash (debit), cheque, credit or a bank draft. Consumers often trade-in their current vehicle and the trade-in value can go towards or be used as the down payment.

In order to secure a certain interest rate when financing, it is quite common that a consumer would be required to pay a certain percentage of the vehicle’s total purchase price as a down payment. For example, a consumer wants to buy a $25,000 vehicle and get a three per cent interest rate on a four year loan. The financing company may ask for a down payment of 10 per cent ($2,500) in order to qualify for that particular interest rate and term.

If the consumer puts a deposit down, the deposit can often be used towards the down payment.

Things to remember:

  • The bill of sale should accurately list any down payment made towards the vehicle. Carefully review the bill of sale before you sign it.
  • A down payment only happens when a purchase happens, meaning once you sign the bill of sale, you are contractually obligated to buy the vehicle. There is no “cooling off” period in Alberta.
  • Many automotive businesses offer financing with no down payment, but that often means higher interest rates and longer term loans.

Visit amvic.org to learn more about budgeting, buying a new or used car and what to remember before you sign.