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What to know before putting down a deposit for a used car
Protect yourself by getting everything in writing.
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Putting down a deposit can help you hold a vehicle while you get the full payment or financing together. But be careful — it can also be used by some dealers to swindle you out of your money.
Do I need to leave a deposit?
Car dealers or sellers can request that you put down a deposit so the vehicle isn’t sold to anyone else, but you aren’t obligated to do so. If you don’t feel comfortable leaving a deposit for a used car, you can always walk away — there will be another car if the one you want is sold.
And generally speaking, it’s not a good idea to leave a deposit for a car that you aren’t sure you want.
Types of deposits for used cars
There are two types of deposits that you can be asked for when buying a used car: holding and purchase.
Holding deposit
A holding deposit prevents the dealer from selling the car to another buyer and is the most common type of deposit for a used car.
- It may go toward the purchase price, but this needs to be decided between you and the seller.
- You’ll usually have a limited amount of time to come back and buy the car.
- The deposit can be either refundable or non-refundable — if you’re not 100% sure that you want the car, get it in writing that you’re leaving a refundable deposit.
Purchase deposit
A purchase deposit is most often used when the dealer doesn’t have the car you want in stock.
For new cars, a deposit is often required when buying a car from the factory. Used car dealers will sometimes require a purchase deposit when they’re trading or buying a car from another dealer.
- It’s usually non-refundable, but you should confirm this with the seller.
- Both you and the dealer should sign a contract that outlines all terms and conditions relating to the sale.
What to do if you leave a deposit
If you decide to leave a deposit to hold your vehicle, there are a few ways you can protect yourself:
- Agree on the terms of the deposit. Check whether the 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 will use that to refuse to give you the deposit back. Using a credit card allows you to dispute the charge with your credit card company if the dealer doesn’t want to refund the deposit.
- Get a receipt. It’s important to get a receipt for the deposit for your own records, especially if there is any disagreement down the line.
- Inspect the car thoroughly. Even if you’ve agreed that the deposit is refundable, checking the car before putting down your deposit can save yourself hassle down the track. Make note of the vehicle identification number (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 stolen or still has a lien from the previous owner. Don’t put a deposit on any car without a VIN — a reputable dealer will be able to get you the VIN number of any used car they’re selling, even if it’s not currently on the lot.
- Don’t leave too large a deposit. Don’t leave any amount of money you wouldn’t be OK not getting back — especially if you don’t have it in writing that the deposit it refundable if you decide not to buy the car.
- Check your state’s laws. Some states set laws pertaining to car deposits that may allow you to get your deposit back if you change your mind. Look up your state’s car deposit laws before leaving one with a dealer.
Can I get my deposit back after I signed a contract?
Maybe, though it depends on the car dealer. While federal and state laws give consumers automatic cooling off periods for some types of purchases, car sales aren’t among them. This means whether you can get your deposit back after signing a contract will depend on the dealer’s policy.
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Bottom line
Be cautious any time you’re asked to leave a deposit on a used car and get everything in writing. And 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.
Frequently asked questions
Image source: Getty Images
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