Deficiency Balances: Auto Loans

Hi,
One of the most unexpected major debt problems that occur today for consumers is when a deficiency balance is created on their auto loan. A deficiency balance is usually created when a car has to be repossessed by the lender. The lender is then required to sell the car for what is defined as "fair market value", deducting the expenses of repossession and any other liquidation fees, then applying the remaining proceeds from the sale of the car to the balance of the loan. In many instances consumers are unaware of the fact that they are responsible for the full payment on the loan, and that their vehicle is only collateral on the loan. If a consumer gets into a situation in which it becomes apparent that he or she is not going to be able to continue making vehicle payments, and that the lender can no longer extend any more time without payment, there are a few actions a consumer can take prior to repossession:
1) Make an agreement with the lender that the consumer will sell the vehicle for the lender. The reason is that because of the vested interest in the sale price for the vehicle, the consumer will get a higher sales price than the lender. Typically lenders are not particularly good at selling vehicles and don't care if a vehicle is sold for top dollar.
2) If repossession is imminent, take pictures of the inside and outside of the vehicle and get the Kelly Blue Book value of your vehicle. This information will assure you that the lender is getting "fair market value" for your vehicle in order to apply the proceeds against your loan. In some instances, to save time lenders will briefly advertise vehicles and then auction the vehicles at wholesale to dealers. If you feel that you have been a victim of this practice, you need to approach your lender with the figures you got from the Kelly Blue Book and ask the lender to explain why it was not sold for fair market value. In many cases, this will allow you the upper hand in negotiating a reasonable settlement of your deficiency balance. If the lender refuses, inform the lender that you will be sending pictures of your vehicle, plus the Kelly Blue Book value of your car to the office of the Attorney General to ask them to look into the matter.
3) When negotiating your deficiency balance, your lender is going to consider the following:
a) The age of the debt.
b) The amount of the debt.
c) The type of the debt: ie, was it a new or used vehicle.
d) Your ability to repay based upon your credit history.
e) How straightforward you have been in handling your loan from the outset.
In most cases, a lender will settle a deficiency balance if the settlement offer is reasonable. As in dealing with any other creditor, success or failure of negotiating a settlement might hinge upon how well you have communicated with the creditor throughout your history.
Until later,
Alan