Auto Deficiency 101: The Basics

June 8, 2015

An auto deficiency is regarded as the difference between the amount of money that you owe on your car, and the amount of money your car was sold for, by your lender – after repossessing it.

Even if your car lender repossesses your car or any other type of vehicle, such as a truck, van, or motorcycle – this does not guarantee you the freedom to rejoice, since you still owe them a deficiency.

You may have owed them more than the car was worth; this condition is normally known as, underwater.

If you have been making commitments and paying the small payments, your car may not be repossessed. Nonetheless, you should try to understand what a deficiency is, to avoid getting into such situations – or (in some cases) how to get out of them. You also need to know how an auto deficiency affects your credit score, as well as, how to check your equifax dispute status, to make sure that your credit report accurately reflects your current financial situation.

Security

Security is the valuable item that is needed to collateralize a loan; thus, it is needed when you take a loan to purchase a car; normally you may be required to use your car as security, to be used as collateral, for the loan.

This means if you fail to repay your loan on time or if you’re unable to pay your loan, the lending company will sell your car, in order to recoup the money you failed to pay back.

Repossession is known as the process of taking the car that you owe. After they repossess your car, the lending company will look for the best buyer, and sell it. The company normally sells your car, without giving you any specific details about their transaction.

You may sell your car and get more than what you owe the company; this means that you will have extra cash at your disposal, after clearing your loan. For instance, you may owe the lending company $20,000, and then you sell your car at $25,000, meaning you have an extra of $5,000 at your disposal. The funds are usually known as, surplus.

In order to preserve some more credit, it is advisable that you sell the car yourself, if you are sure that it will sell more.

Negative equity occurs in a situation where your car may sell less than what you may owe the lending company; this may be influenced by high interest rates, with long terms that makes it a challenge for you to repay your loan.

In such a scenario, when the lending company sell your car, there will be a large difference on what they sell it for, and the actual amount you owe them. This is what is known as auto deficiency. For instance, if they sell your car at $20,000, but you owe them $25,000, $5,000 is usually the deficiency that you owe them.

For you to avoid such situations, you are required to do a background check, before deciding to let the lender take your car. You may also find a dealer who will be able estimate the value of your car, in order to know where you stand, financially. Lenders may also keep possession of the inbuilt systems inside your car.

Judgments concerning deficiencies are normally treated like any other. They can make every effort to collect the money that you owe them. However, you can always discuss matters with the lenders (explaining your situation), in order to establish how you can pay them the deficiency. Sometimes, an overzealous lender may jump the gun and wrongfully report negative items to the credit bureaus; if this is the case, you still have the option to call the transunion dispute phone number, to investigate, and resolve matters, quickly.

Ways in which your lender can collect their deficiency that you owe them:

Before you make any deals with any lenders, you should always weigh the options of other offers, by different car lending companies.

Below are some strategies you can use, in order to defend yourself in case of an auto deficiency situation:

mercedes_sport_740x295_03-2013You should know that, a lending company may take more than 1 year to attain a deficiency judgment, so they won’t progress too quickly, when it comes to collection. This may be beneficial, if you have no assets or if you are a low income earner.

You can also work out a payment plan between you and your lender, since they may be willing to listen to you, for the sake of getting their money back. You can convince them by showing that you are experiencing financial problems, thus, justifying your proposal of a dramatic reduction of your monthly payments.