What if I Can’t Pay the Deficiency Balance After a Repo?

What Is a Deficiency Balance?

A deficiency balance is an amount of money you owe to your previous lender to cover the difference between your original loan balance and the price the vehicle sold for at auction. This can happen after both a repo and a voluntary repossession.

You're typically required to repay this amount as one lump sum, and if you don't your lender can take you to court.

What Happens If You Can’t Pay Deficiency Balance?

The lender is likely to contact you right away about how much you owe, and when you’re required to pay it. If you can’t repay the sum you owe, or you refuse to, the lender can still attempt to collect the debt from you by suing. This can lead to a judgment that garnishes your wages or even takes funds directly from your bank account to pay the balance.

If you're unable to pay your deficiency balance in one lump sum, here are some options to consider:

• Talk with the lender – Your first step should be to work something out with your lender. They may be willing to arrange a payment agreement, which may involve setting up automatic payments. This typically involves you signing a legal agreement that says you will pay it in installments, similar to the original loan contract you held.
• Settle the balance – Some car lenders may be willing to settle the deficiency balance for a percentage of what you owe. According to the legal website Nolo.com, this means proving financial hardship. This could include having to provide proof that you’re laid off, disabled, or unemployed, or providing check stubs showing you can’t pay the full amount. If the lender agrees to a settlement, you likely need to pay the agreed settlement amount in full, typically within a few weeks.
• Get another loan – If you and the lender can’t work something out with your lender, it may be worth it to get a loan for the deficiency balance. This can involve getting a personal loan from a direct lender that can pay your past auto lender, then repaying the direct lender in installments. This should be a second-to-last resort option if you're already having trouble covering your debts.
• File for bankruptcy – Vehicles are expensive, and a deficiency balance could be in the thousands. If yours is overwhelmingly large, and none of the above options are available to you, it may be worth it to consider bankruptcy as a last resort. In personal bankruptcy, you may be able to discharge repossession-related expenses, including a deficiency balance. However, while filing for bankruptcy has benefits and can allow you to come out the other side with a clean slate, it has serious consequences on your credit and borrowing power in the future.

How Does a Deficiency Balance Affect Your Credit Score?

A deficiency balance impacts your credit score negatively, and possibly, a lot – around 50 to 150 points typically. Just like the repossession itself, the deficiency balance shows up on your credit reports, typically as an amount in collections. Even after you pay the balance off, it's likely to sit on your credit reports for seven years.

Getting Another Car After a Repossession

Repaying the deficiency balance may be only one of your worries – your car was repossessed and you may need another vehicle right now.

Getting into an auto loan immediately after a repossession can be difficult. Some lenders won't approve borrowers with a repossession on their credit reports, and a repo can seriously lower your credit score. However, you have two options to look into.

In-house financing dealerships are likely your best bet for a car loan right after a repo. These dealers are also lenders, and many don’t pull your credit reports for loan consideration.

Special finance dealerships are signed up with subprime lenders who typically consider borrowers for financing once a repo is over a year old. These lenders consider more than just your credit score and report their loans to the credit bureaus giving you a shot at credit repair.

Finding a Dealership Near You

Finding a dealer that can accompany you on your journey to another auto loan and credit repair doesn’t have to be a hassle. Here at Auto Credit Express, we’ve created a way for bad credit borrowers to get connected to the resources they need for their next car loan.

To get matched to a dealership in your local area that assists in tough credit situations, such as a repo, fill out our free auto loan request form.