Can I just deduct my damages claim from vendor take-back payments instead of suing separately?

Not automatically. Whether you can withhold or reduce vendor take-back payments to offset a separate damages or indemnity claim against the seller depends entirely on what the purchase agreement and the VTB note itself actually say about set-off. Some agreements expressly allow the buyer to set off an established indemnity claim against amounts still owing under the VTB, which is a genuinely useful negotiated protection where it exists.

Others, particularly where the VTB is structured as a freestanding promissory note, are deliberately drafted so payment obligations under the note are independent of any other dispute between the parties, meaning they can't be unilaterally reduced without the seller's agreement or a court order saying otherwise. Deducting without a clear contractual right to do so risks putting you, the buyer, in default under the note yourself — turning your damages claim into a two-sided dispute rather than resolving it. Read the actual set-off language in your specific documents carefully before withholding anything.