A deposit is money paid before goods or services are delivered to hold the sale or the place, and whether it comes back if the customer cancels is set by the agreement. A down payment is the first part of the price, paid at the start, and it lowers the balance the customer pays over time. In business billing the same payment often does both jobs. Regulation Z defines a down payment as an amount paid to a seller to reduce the cash price in a credit sale, and leaves it out when counting whether a plan has more than four installments.
What is a deposit?
An amount paid before the work starts or the goods are delivered, to secure them. It holds a seat, a date or an order, and it shows the customer is committed. A deposit is usually credited toward the final price, but its main job is to confirm the sale.
What is a down payment?
The first part of the price, paid up front, with the rest paid over time. Its main job is to reduce what is left to pay. On a plan, a larger down payment means smaller payments after it.
How do they compare?
| Deposit | Down payment | |
|---|---|---|
| Main job | Secures the sale, a date or a place | Lowers the balance paid over time |
| When it is paid | Before delivery or before work starts | At the start of a plan or purchase |
| Applied to the price | Usually, on the final invoice | Yes, from the start |
| Refund if the customer cancels | Set by the agreement | Set by the agreement |
| Used with | Bookings, projects, orders, enrollments | Payment plans and financed purchases |
Is a deposit refundable?
Only if the agreement says so. Refundable or non-refundable is a contract term, not a property of the word. Whatever you choose, write it into the agreement: how much, when it is refunded, and what reduces it.
How does a down payment change a plan?
A worked example: a $14,800 price.
| Down payment | Balance on the plan | 12 monthly payments |
|---|---|---|
| $0 | $14,800 | 11 × $1,233.33 + $1,233.37 |
| $1,500 | $13,300 | 11 × $1,108.33 + $1,108.37 |
| $3,000 | $11,800 | 11 × $983.33 + $983.37 |
Each row adds up: 11 × $1,233.33 = $13,566.63, and $13,566.63 + $1,233.37 = $14,800. The same check works for the other two rows.
How does Regulation Z treat a down payment?
Three parts of Regulation Z's definitions matter for payment plans:
- The definition. A down payment is "an amount, including the value of property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction."
- Paying it in parts. A deferred portion of a down payment may be treated as part of the down payment if it is payable no later than the due date of the second otherwise regularly scheduled payment and carries no finance charge.
- The installment count. A creditor includes a person who regularly extends consumer credit that is "payable by written agreement in more than four installments (not including a down payment)."
So a down payment plus four scheduled payments is four installments under that wording. Read Is a 0% payment plan a loan? for what the test means in practice. General information, not legal advice.
- 12 CFR 1026.2, Definitions and rules of construction (Regulation Z), Consumer Financial Protection Bureau: paragraphs (a)(17) and (a)(18)
Every figure on this page was checked against these sources on Oct 6, 2026. General information, not legal or tax advice.