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Should I Pay a Deposit?

Orders for big-ticket items and services often require a deposit. But you shouldn't be too quick to fork over your money, as the experience of AARP member Robert Davidowitz in Orlando, Fla., shows.

In late November, Davidowitz was in the market for a new car. After test-driving several vehicles, he settled on a 2010 Nissan Altima. The car he wanted was available at several dealerships in the area, but he was attracted to a zero-percent financing option from Bill Ray Nissan. Davidowitz was directed to salesman Eric Smith. They agreed on the terms—$5,000 down and zero-percent financing—and confirmed by e-mail and a subsequent phone call. At that point, the salesman asked Davidowitz for a $200 "good faith" deposit.

"That's the hook," says Luke, a 30-year auto industry veteran whom I consulted. (In return for the straight scoop, I agreed to change his name.) "It works like this," he told me. "If you can get a potential customer to put up even a small deposit, you know you've got them. They're not going to be shopping around any more. You've hooked them."

Service companies, such as movers, venue brokers, and event planners typically ask for deposits when taking a booking—a legitimate request, since they're committing their time. Product suppliers also often ask for deposits for special orders they might not be able to sell to someone else. However, neither situation applied to the car Robert Davidowitz wanted.

When Davidowitz showed up at the dealership the next day, the car was sitting at the front of the lot, cleaned up and ready to go. He went inside to sign the deal. But he says he wasn't handed the deal he and Eric Smith had agreed to during their phone call.

"They changed the terms on me," Davidowitz claims. "Instead of zero interest, they wanted me to pay 4 percent on the loan. I told them I couldn't do that. They tried to steer me into several other deals and even tried to sell me a year-old car instead of the new one. I felt they were jerking me around. Finally, I told them I just wanted to leave and asked for my deposit back. But instead of the credit, they only gave me a receipt for the deposit and said I'd have to wait until the next regular business day for them to process the refund."

Yet when Robert checked his credit card account a few days later, the promised $200 refund was nowhere to be seen. He called the dealership and was told he'd have to show up in person with the receipt in hand before they could return the money.

By then, Davidowitz was weary of Bill Ray Nissan. He felt that the dealership had not lived up to its end of the "good faith" agreement. Now it was delaying the refund of his deposit. Not wanting to be subject to another barrage of high-pressure selling, he contacted me and asked what to do.

My industry insider had an idea of what might have been going on. "A dealer never wants to let a customer walk away," Luke told me. "By requiring Robert to return to the dealership during regular business hours, the sales manager gets a chance to personally reel him back into the boat."

I asked Michael Frank, the general manager of Bill Ray Nissan, why Robert Davidowitz had to show up in person to get his refund. After all, his deposit had been taken over the phone. He told me that it was a matter of "security."

In the end, Frank agreed to refund Davidowitz his $200 without requiring a return visit to the dealership. A few days later, Davidowitz bought a 2010 Nissan Altima from one of Frank's competitors, in a deal that cost him no more than he had originally settled on with Eric Smith.
Davidowitz's case should be enough to raise an eyebrow any time you are asked for a deposit. Accordingly, here are two rules to keep in mind whenever you find yourself in a similar situation:

  • When you pay any deposit, make sure what you're paying for is stated in writing, along with how you can get a refund, if needed.
  • Never pay a deposit just to demonstrate "good faith." If a company starts off a relationship by doubting your integrity, I guarantee you'd be better off with someone else.

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