Letter of Credit vs T/T for Buying Cars from China: Which Is Safer?

For a first order of cars from China, neither method is “safe” on its own: a T/T wire protects the party who is paid first, and a letter of credit (LC) protects whoever controls the documents. A letter of credit swaps trust in the seller for a bank’s promise to pay against compliant documents under the ICC’s UCP 600 rules. A T/T is a plain bank transfer with no document check at all. Most car deals split the money: a deposit by T/T, the balance by LC or by T/T against shipping documents.

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What is the difference between a letter of credit and a T/T?

A T/T (telegraphic transfer) is a direct bank-to-bank wire. The buyer instructs their bank, the money arrives in the seller’s account, and no bank checks what was shipped. It is fast and cheap, which is why it dominates repeat business between parties who already know each other.

A letter of credit is a written undertaking by a bank, issued at the buyer’s request, to pay the seller once the seller presents documents that match the credit’s terms. Payment depends on paper (invoice, bill of lading, packing list and whatever else the credit demands), not on whether the buyer is happy. The governing rulebook for most documentary credits is the ICC’s UCP 600, which took effect on 1 July 2007.

For cars the practical consequence is simple. With a T/T you are judging the seller. With an LC you are judging the documents and the issuing bank.

How do the two methods split risk between buyer and seller?

Banking guidance rates the methods like this. NAB’s trade-payments guide puts a letter of credit at medium risk for the importer and low to medium for the exporter. It rates advance payment as high risk for the importer and low for the exporter. It rates paying only after delivery as minimal for the importer and maximum for the exporter.

Read the table from your own side. If you are the importer, a heavy prepayment is exactly where you are most exposed. If your buyer is far away and you hold the cars, the reverse applies.

What does a letter of credit actually protect a car importer from?

An LC protects the importer mainly from paying for nothing. Payment is released only against documents that comply with the credit, so a seller who never ships cannot collect the LC amount. That is a real protection compared with a full prepayment.

It does not protect you from the wrong cars. A bank checks documents, not vehicles. If the invoice says 2026 model, left-hand drive and the bill of lading matches, the bank pays, even if the cars on the dock differ. Pre-shipment inspection by an independent party, and a contract that states trim, colour, VIN list and model year, remain your protection on quality. See the used-car import traps checklist for the checks that matter.

What UCP 600 timing rules catch car buyers out?

Two numbers cause most rejected documents:

• 21 calendar days. Under Article 14(c), original transport documents must be presented within 21 calendar days after shipment, and never later than the credit’s expiry, unless the credit says otherwise.
• Five banking days. Under Article 14(b), a bank has a maximum of five banking days after presentation to decide whether the documents comply.

Car shipments make the 21-day rule tight. Cars sit at port waiting for a vessel, the bill of lading is dated at loading, and the seller then has to collect, check and courier a full set of documents. If the credit is written with a short expiry or an unrealistic shipment window, the seller may be unable to present on time and ask you for an amendment, which costs both of you time and bank fees.

Practical step for importers: agree the shipment window, port of loading and presentation period with the seller before you apply for the credit, not after.

What does “discrepant documents” mean, and why does it matter?

A discrepancy is any mismatch between the documents and the credit: a spelling difference in the consignee’s name, a vessel name that differs, a quantity that does not add up. Banks examine strictly. A discrepant set can be refused, and the seller then needs your consent (a waiver) to be paid.

That gives the buyer bargaining power, and it is also a trap. Sellers who know the credit is strict will often push for tolerant terms. Buyers who write unrealistic conditions into the credit (for instance, a document the seller cannot obtain) simply make it unusable. Keep the document list to what is actually needed for clearance in your country. Our export supply chain guide lists the paperwork that normally exists on a car shipment.

How much deposit should you pay on a T/T?

There is no rule. Deposits for cars are a commercial negotiation, and any specific percentage you see quoted online reflects someone’s own deal, not a standard. What matters more is what the deposit is tied to:

1. A named stock list or VIN list. A deposit against “a batch of Seagulls” is a deposit against nothing. A deposit against listed units reserves actual stock.
2. A written contract with delivery terms. State the Incoterm (FOB, CFR, CIF), the loading port, the shipment date and what happens if the date slips. Our CIF Djibouti breakdown shows what a CIF price does and does not include.
3. Release of the balance against documents. The balance should move only against a scanned bill of lading, an invoice and a packing list, or against a full LC presentation.

If a seller wants 100% in advance on a new relationship, you are being asked to carry all of the risk. Compare that with the standard checks in our guide to verifying a Chinese car exporter.

Does the Incoterm change which payment method makes sense?

Yes, because the Incoterm decides who contracts shipping and when risk passes. Under FOB the risk passes when the cars are loaded on the vessel, so an LC calling for a bill of lading is a natural fit. Under CIF the seller also pays freight and insurance, so the documents list expands to include an insurance certificate. A mismatch between the Incoterm in your contract and the one in the LC is a classic cause of a rejected presentation.

If you are still working out the shipping side, read shipping cars from China to African ports and how many cars fit in a container. Both change the documents and the timing that the credit has to cover.

When is a T/T enough, and when should you insist on an LC?

A T/T is usually reasonable when:

• you have completed at least one smaller order with the same seller;
• the lot is a handful of units, such as a single container;
• the balance is released only against shipping documents.

An LC is worth the cost and the paperwork when:

• the order is large enough that losing the deposit would hurt the business;
• you are entering a new supplier relationship and cannot inspect;
• your country’s central bank or customs requires a documentary credit for imports;
• you need a document trail for foreign exchange allocation.

Check the last two points with your own bank. Foreign exchange rules differ by country and change, and a bank in Accra or Lima will tell you what it needs more reliably than any general guide. For market-specific rules see our pages on importing cars from China to Ghana, Senegal and Peru.

What does a letter of credit cost, and what should you ask your bank?

Letters of credit usually cost more in bank fees than a plain wire. Banks charge for issuing the credit, for examining documents, for amendments, and for each discrepancy. Which of those fall on you and which on the seller depends on the credit’s terms, so write that into the contract. We do not quote bank charges here because they vary by bank and by country.

Questions to put to the issuing bank before you apply:

1. What collateral or margin deposit do you require against the credit?
2. Will you confirm the credit, or will the seller need a confirming bank?
3. What is your fee for each amendment and for each discrepancy?
4. How long do you need from application to issue?

How do payment terms fit into a deal for specific models?

Payment terms depend on the model and the stock position, not just on the buyer. Cars already in stock and ready to load suit a short T/T structure. Newly launched models, such as the Geely Galaxy Battleship 700, may need long lead times, which stretch the LC’s shipment window. High-volume small EVs like the BYD Seagull are normally ordered in full containers, and the Dolphin vs Seagull comparison helps you decide the mix before you fix the amount on the credit.

For buyers watching market momentum before committing, our September 2026 export data review shows which segments are growing. And if you want to meet sellers in person before paying anyone, the Canton Fair buyer’s guide covers what to check on site. Other buyers working out specs first can compare the Zeekr 8X vs Lynk & Co 900, the BYD Atto 3 430 vs 510 or the Hongqi HS5, then settle terms for the chosen model. Also see EVs for ride-hailing fleets in Addis Ababa for how fleet buyers structure larger lots, and Chinese cars for Russia and Central Asia for another region buyers ask about.

FAQ

Is a letter of credit safer than a T/T when buying cars from China?

It is safer against non-shipment, because the bank pays only against compliant documents. It is not safer against wrong or poor-quality cars, since banks check paper rather than vehicles. Pair it with an independent inspection and a detailed contract.

What is the usual combination for car deals?

A deposit by T/T followed by a balance by LC or by T/T against shipping documents is common. The split is a commercial agreement and is not fixed by any rule.

What is the 21-day rule in UCP 600?

Article 14(c) sets a default of 21 calendar days after shipment for presenting original transport documents, never later than the credit’s expiry. A credit can state a different period.

How long does a bank have to check documents?

A maximum of five banking days after presentation under Article 14(b) of UCP 600.

Can I get my deposit back if the seller does not ship?

Only if the contract and proof of payment support it. A deposit against a named stock list and a written contract is far easier to recover than a verbal arrangement. Stop and take legal advice before sending further money.

Do you handle payments for importers?

Payment terms are agreed per deal with the buyer’s bank and the supplier. Message us on WhatsApp with the model, quantity and destination port and we will explain the document set that normally accompanies a car shipment.

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Sources: ICC UCP 600 (effective 1 July 2007), Articles 14(b) and 14(c), as described in ICC Digital Library commentary and ICC Banking Commission forum discussions, and in a UCP 600 summary by Razorpay (checked October 2026). Risk ratings for payment methods are from NAB’s international trade payment methods guide only (single source). The UCP 600 effective date is from the Razorpay summary only (single source). The Incoterms points on FOB and CIF follow Incoterms 2020 commentary from Reed Smith and HFW. Descriptions of T/T and documentary credits reflect general trade-finance practice. We do not quote bank fees or deposit percentages. Rules and fees differ by country and bank; confirm with your own bank before you commit.