What to know before putting down a deposit for a used car

Putting down a used car deposit can help you hold a vehicle with a dealership while you get financing. But don’t pay more than $1,000 as a starting point—and ask for vehicle information and a receipt showing proof of your deposit. This helps prevent issues when it comes time to claim your vehicle and get your money back.

What is a used car deposit?

A used car deposit is a small chunk of money you pay to hold a vehicle while getting your finances in order. Leaving a deposit is not the same as signing a contract and isn’t legally binding in any way.

You may want to confirm with your seller that the deposit is refundable and have them write this on your receipt to avoid future confusion in case you decide not to purchase the car. It’s also essential to get the vehicle identification number (VIN) on the vehicle, so you know what you’re committing to buy.

Types of deposits for used cars

There are two types of used car deposits that you may need to provide when buying a used car:

Related: Best sites to buy a used car online

Do you need to leave a used car deposit?

Car dealers or sellers can request that you put down a used car deposit to hold the vehicle you want, but you’re not obligated to do so. The only time you might want to leave a used car deposit is if you’re set on buying a particular vehicle and you just need time to figure out your finances.

You may also want to leave a deposit to secure time for a vehicle inspection or to search for the vehicle’s collision history on a site like CARFAX or CarProof. You shouldn’t leave a used car deposit for a car you’re not 100% sure you want unless your seller promises in writing that the deposit is refundable.

Should you leave a deposit for a car?

It doesn’t hurt to leave a used car deposit if your dealer is trustworthy. That said, you might not want to leave a deposit if:

• The seller is asking for a used car deposit over $1,000.
• You’re not sure you want the vehicle.
• The seller won’t provide written proof that the used car deposit is refundable.
• The seller wants you to pay in cash.
• You can’t verify the vehicle’s VIN.
• You’re asked to leave a deposit for a used car from a private seller.

How much of a deposit do you need to leave for a used car?

Most used car deposits in Canada range from $500 to $1,000. Typically, this doesn’t vary based on the vehicle’s price.

Make sure you get in writing that the deposit will be returned to you or applied to the purchase price of your vehicle when you buy the used car. As a rule of thumb, avoid paying a used car deposit over $1,000.

What to do if you leave a used car deposit

If you decide to leave a used car deposit to hold your vehicle, there are a few ways you can protect yourself from loss:

• Agree on the terms of the deposit. Check whether the used car deposit is refundable, whether the deposit is part of the purchase price and how the deposit should be paid. Have all the terms written down and signed by both parties.
• Don’t use cash. Cash isn’t traceable, and some less-reputable dealers might refuse to give your used car deposit back if there’s no paper trail. Using a credit card or debit card allows you to dispute the charge with your card provider if the dealer doesn’t want to refund the deposit.
• Get a receipt. It’s important to get a used car deposit receipt for your own records, especially if there’s any disagreement down the road.
• Inspect the car thoroughly. Even the used car deposit is refundable, inspect the car before putting down any money. Make note of the VIN and, if possible, have the car inspected by a third-party mechanic.
• Get a VIN check. Run the vehicle’s VIN to find out if it’s been in an accident, was previously stolen or still has a lien from a previous owner. Don’t put a deposit on any car without a VIN. A reputable dealer can get the VIN number of any used car they’re selling, even if it’s not on the lot.
• Avoid leaving a large deposit. The average amount of money you should expect to leave for a used car deposit is between $500 and $1,000. Any more than that and you might be dealing with a fraudulent lender.
• Don’t leave a deposit on a used car from a private seller. Avoid leaving a deposit on a used car sold by a private party unless you know the person well enough to trust that you’ll get the money back.

Related: Compare online car dealers in Canada

How long will a dealer hold a car with a deposit?

The length of time your dealer will hold a vehicle with a used car deposit may vary based on the type of deposit you leave:

• Holding deposit. A dealer will typically hold your vehicle for as long as they’ve agreed to do so. Usually, it should only take a few days for you to get your financing in order, so most will agree to hold your used car for a few days or weeks. But if you wait too long, they might sell the vehicle to another buyer.
• Purchase deposit. Purchase deposits often depend on when the dealer gets a specific car in stock. This can sometimes take months or even years, depending on the vehicle. The seller will typically hold your deposit as long as it takes to get your vehicle in stock.

Can I get my used car deposit back after I signed a contract?

Maybe, although it depends on the car dealer. Most provinces and territories allow for a “cooling off” period in which you can cancel a purchase and get a refund, but this usually doesn’t apply to vehicle purchases.

There are a few cases where you might be allowed to cancel a vehicle purchase. For example, your dealer’s policy might include a cooling off period to compete with other dealerships. Or, the dealer might not have met full disclosure requirements prior to selling the car.

To justify cancelling the sale, you’ll need to show that the dealer intentionally withheld information. Cancellations usually aren’t justified if the dealer made an honest mistake and quickly fixed it. If you want to back out of a car sale, speak with a lawyer to learn more about your options.

Found the car you want? Compare car loans to buy a used car

Bottom line

Be cautious any time you’re asked to leave a deposit on a used car, and get everything in writing. If you’re looking to finance a used vehicle, compare car loan providers to find one that might offer better rates and terms than the dealership.

FAQs about used car deposits

• If I put a deposit on a car, can my dealer sell it?

  Technically, yes. Your dealer isn't legally obligated to keep the car even if you've put a used car deposit down, since it's not a legally binding contract. It's up to your dealer to honour their end of the bargain. But if they do sell the car, they must refund your deposit.

• Can a dealership keep your deposit?

  Unfortunately, yes. Dealers don't have to return a deposit unless a refund is explicitly written into the deposit agreement. That's why it's incredibly important to get a receipt that clearly states the deposit is refundable. You should both sign off on this statement to ensure it's enforceable.

• Is there any way to get back a nonrefundable deposit?

  If the dealer lied or misled you in some way, you might be able to get your used car deposit back by taking the dealer to small claims court. Consult with a lawyer to learn more about your rights and options. You may also want to file a report with the Better Business Bureau and your provincial or territorial consumer protection agency.

• What if the dealer refuses to give me back a refundable deposit?

  That depends on whether you have a receipt stating that the deposit is refundable. If so, you can usually contact your credit card company or bank to get a refund. If you paid in cash, you could pursue legal action, although this route might not be worth the headache for amounts under $1,000.

• What's the difference between a deposit and a down payment?

  A deposit is used to hold your purchase until you're able to buy the car. A down payment covers a portion of the vehicle's purchase price upfront, and you take out financing for the rest.

• Should I leave a deposit on a used car from a private seller?

  No. Never leave a deposit on a used car from a private seller unless you know them personally. You never really know who you're dealing with when you purchase a vehicle privately, which makes it easier to fall victim to fraud.