Deposit vs. Advance Payment

Difference Between Deposit And Advance Payment Deposit The deposit is a value (both in money and things) that…

Difference Between Deposit And Advance Payment


The deposit is a value (both in money and things) that is paid as mutual guarantee for the sale of an asset.  When you pay a deposit, it is usually a part percentage of the total value. By deposit you ensure its readiness to conclude the contract. If one party proves defaulting it should give the other party the amount of deposit. That is: if the buyer is at fault (for unavailability of the total amount or waiver purchase) would lose deposit paid. If the seller proves to be the defaulting party, it would be forced to return the deposit plus an amount equal to the deposit as compensation.

Consider this example: Let’s say hypothetically that a house cost 100,000€ and that both the seller and the buyer have signed the agreement. The buyer needs a mutual guarantee. The buyer of the house decides to pay 10%Or € 10,000 as deposit. Here we can identify four possible options:

1. The mutual is granted, the buyer is still willing to buy, so he have fulfilled the contract. In addition, the seller has not changed his mind. The buyer pays the remaining 90% and the deal is concluded.

2. The mutual is granted. The purchaser has changed his mind while the seller is still willing to make the sale. The buyer is defaulting and therefore loses deposit 10,000 $.

3. The mutual is not granted and the seller has not changed idea. The buyer is defaulting and therefore loses deposit of 10,000 €.

4. The mutual is granted but the seller has changed his mind (For example, has received an offer significantly higher). The seller is defaulting and therefore is forced to pay the purchaser deposit plus a value equal to the same amount. Or in this case, must pay 20,000$ to purchaser.

Advance payment

Advance payment is a part of the value of the good like deposit. In deposit the amount is not huge. It is only to confirm the purchase. Advance payment ensures the reservation of the goods to be purchased. For example, in a store a video game coasting 50$ is arriving shortly. It can be booked by paying 10$ in advance. There are three possibilities:

1. The game arrives and is sold to the person who has booked who pays the remaining 40 €.

2. The game arrives but the buyer has changed his mind, he loses the deposit paid.

3. The game does not reach the seller (or they change their minds) and therefore return the deposit to the purchaser.


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