What You Need to Know if You Owe a Deficiency Balance

What happens if you don’t pay a deficiency balance? Don’t wait to find out— talk to your lender about your options.
Written by R.E. Fulton
Reviewed by Jessica Barrett
If you owe a deficiency balance after auto loan repossession, you should talk to your lender about negotiating a payment plan or a settlement
If the bank
repossesses your car
, your debt won’t be wiped clean. If the lender is able to sell the vehicle, you’ll still owe the deficiency balance, which refers to your loan balance minus the sale price of the vehicle
The best option with a deficiency balance is to pay it off in full—but if you don’t have the money, you’ll need to negotiate. 
One option that can help you avoid repossession and a deficiency balance is finding cheap car insurance.
Car insurance
comparison and broker app
can help you find a lower rate on the insurance you need that allows you to keep up with your
car loan
payments and avoid the loss of your vehicle.
Even if you’ve already lost your car, Jerry still has your back. Here’s everything you need to know if you owe a deficiency balance on your auto loan. 
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What is a deficiency balance? 

A deficiency balance is the remainder left over when your lender repossesses your car and sells it. In most cases, you will be responsible for a deficiency balance after auto loan repossession. In general, lenders will ask you to pay a deficiency balance as a single lump sum rather than through monthly payments. 

How a deficiency balance works

We’ll give you an example of how a deficiency balance works. Let’s say you buy a car and take out a car loan for $30,000. You start making monthly payments and everything seems great—but then you run into financial trouble and can’t keep up with your car loan payments. With $25,000 of the loan balance left to pay, the bank, unfortunately, repossesses the car. 
They’ll try to sell the car to get back as much of the debt as possible. Then, they’ll subtract the sale price from your remaining balance. Let’s say they sell your vehicle for $20,000—that means you’re still on the hook for a deficiency balance of $5,000.  
The exact amount of the deficiency balance will vary depending on the sale price, your remaining balance, and your lender’s policies. Some lenders may add legal fees associated with the sale of the car to your balance. You might also be asked to pay the deficiency balance as a lump sum rather than spread-out payments. 
Key Takeaway: If your lender repossesses your vehicle and sells it, you’ll be responsible for paying whatever is left of your balance after the sale price is subtracted. 
MORE: How to reduce car payments without refinancing your car loan

What options do you have when you owe a deficiency balance? 

If you owe a deficiency balance on your car after a voluntary surrender or repossession, you have a few options for dealing with the payment: 
  • Pay the full balance: This is the best option if you can afford it. 
  • Talk to your lender about a payment plan: If you can’t afford to pay the deficiency balance as a lump sum, communicate that to your lender immediately. You may be able to set up a payment plan that allows you to pay the balance over an extended period.
  • Negotiate a settlement: Debt settlement allows you to work with your lender to agree on a lower lump sum payment. 
Don’t ignore a deficiency balance. If you don’t pay the balance and don’t communicate with your lender about it, you could face a lawsuit. If the lender or a collections agency chooses to sue you over the deficiency balance, they could be authorized to seize the money directly through wage garnishment or a levy on your bank account. 
Key Takeaway If you owe a deficiency balance, paying it off as a lump sum, arranging a payment plan, or negotiating a settlement are your best options. 

Save money on car insurance

If you’re paying an arm and a leg for car insurance every month, it might feel impossible to keep up with your loan payments. Free up your finances and avoid repossession by shopping for a lower car insurance premium with
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MORE: Here’s how to save money on car expenses
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While owing a deficiency balance shouldn’t affect your credit score on its own, the things that lead up to it—missed payments, defaulting on a loan, and repossession or voluntary surrender—can seriously damage your credit.
Yes—even if you voluntarily surrendered your car to avoid a repossession, you’ll probably still be responsible for a deficiency balance after the lender sells your vehicle.
Failure to pay a deficiency balance after auto loan repossession opens you up to serious legal consequences. Your lender can sue you, which could lead to wage garnishment or a levy against your bank account.
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