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What Are Deficiency Balances After Repossession When a car or other property is repossessed, the borrower may still owe money on that asset to the lender. It is the difference between what was still unpaid on the loan and how much of their loss (if any) a bank can recover through selling whatever they had repossessed.
What is a Deficiency Balance?
That is, if a lender sells repossessed property for less than the amount of the loan still owed. For instance, if you have a $15,000 car loan and the lender repossesses your vehicle for which he garners $10,000 by selling it off in an auction you would be liable for the balance amount of 5k plus any other charges that were accrued during getting your asset seized.135
Who Has to Pay for This?
This difference is called a deficiency balance, and the borrower usually remains responsible for it. Even though some lenders may elect to forgive it is debt in certain circumstances (e.g. if the borrower has no more assets), this does not mean that others will require these payments by any means24. If they do not get paid back, the lenders may take this to court and go for wage garnishment or sell your debt off to a collection56.
Impact on Credit Score
A deficiency balance is a huge mark against your credit score. The repossession itself will stay on your credit report for 7 years and impact making it more difficult to get loans or the best interest rates in future transactions13.
Ways to Handle Deficiency Balances
Cash Payment: Whenever possible settling the deficiency balance entirely to prevent additional problems.
Payment Arrangements: Some lenders are willing to arrange a payment plan with you that will help you pay off the balance over time.
Compromise: Lenders sometimes will agree to collect a reduced sum, for instance up-time if you can pay in cash.24
Knowing how deficiency balances work is extremely important to those who are dealing with repossession because it can prevent financial fallout that would follow them in years to come.
