A deficiency balance is the unpaid portion of a loan that the lender is still owed after a vehicle has been repossessed and sold at auction. If the proceeds from the sale are not enough to cover the outstanding balance of the loan, the borrower is said to have a deficiency balance. In most cases, the lender will require the borrower to pay off this balance in full.
When a vehicle is repossessed, the lender typically sells it at auction in an effort to recoup as much of the outstanding loan balance as possible. If the sale price is not enough to cover the loan balance, the borrower is said to have a deficiency balance. In most cases, borrowers are still required to pay off this remaining balance even though they no longer own the vehicle.
The amount of money owed on a deficiency balance will depend on several factors, including how much was owed on the loan originally and what price the vehicle sold for at auction. In some cases, lenders may be willing to negotiate with borrowers in an effort to reach a mutually agreeable resolution. However, it is important to keep in mind that lenders are not obligated to do this and they may still require full payment of the deficiency balance.
Causes of a deficiency balance
A deficiency balance can occur when a borrower defaults on an auto loan and the lender sells the vehicle for less than the remaining balance of the loan. In this case, the lender may pursue legal action to recover the deficiency balance from the borrower.
There are a number of reasons why a borrower may default on an auto loan, including:
- Unemployment or underemployment
- Illness or disability
- Divorce or relationship breakup
- Death of a primary wage earner
- Excessive indebtedness
- negative equity in the vehicle
How to avoid a deficiency balance
If you’re upside down on your car loan, that means you owe more than the car is worth. Here are a few tips to avoid being upside down, or at least minimize the amount you owe:
- Make a large down payment. The more money you put down upfront, the less you’ll have to finance. This will reduce the likelihood of being upside down on your loan.
- Get a shorter loan term. Shorter loans have lower total interest costs, so you’ll be less likely to owe more than the car is worth at the end of the loan.
- Shop around for low interest rates. The lower your interest rate, the less money you’ll pay in interest over the life of the loan. This will also reduce the likelihood of owing more than the car is worth.
- Trade in your old car. If you have equity in your old car, you can use that money towards your new car purchase. This will help reduce the amount you need to finance, and therefore reduce the likelihood of being upside down on your loan.
How to get rid of a deficiency balance
If you’ve fallen behind on your car payments, you may be wondering how to get rid of a deficiency balance. A deficiency balance is the difference between what you owe on your car loan and the amount your car was sold for at auction.
If you’re unable to pay the deficiency balance, your options are to negotiate with the lender or to file for bankruptcy.
If you’re able to pay the deficiency balance, you can do so in a lump sum or in installments. You may also be able to negotiate a settlement with the lender for less than the full amount.
Rise in delinquents
It’s no secret that auto loans have been on the rise in recent years. But what’s often overlooked is the other side of the coin: the growing number of Americans who are falling behind on their car payments.
According to a new report from the Federal Reserve Bank of New York, the number of delinquent auto loans has reached its highest level since 2010. And while the overall delinquency rate is still relatively low, it’s important to remember that just a few years ago, we were in the midst of a major financial crisis caused by reckless lending and borrowing.
So what’s behind this uptick in delinquent loans? There are a few factors at play. First, cars are getting more expensive, and many people are stretched thin financially. Second, wages have stagnated while the cost of living has gone up. And finally, lenders have become more lax in their standards, offering loans to people with lower credit scores and longer terms.
Based on the information above, we can see that there are a few key things to consider when it comes to deficiency balances related to auto loans. First, it is important to make sure that you have a clear understanding of the terms of your loan agreement. Second, if you are considering refinancing your auto loan, be sure to weigh the pros and cons carefully. Finally, if you are facing a deficiency balance after repaying your auto loan, you may have options for dealing with it.