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What You Need to Know About Auto Loan Deficiency Balances

If you are delinquent on your auto loan or your case has been seized and auctioned off, it is time to seek legal help. We can review your individual circumstances and help you understand all of the debt relief options available to you. The quicker you contact us, the sooner we can provide you with the help you need.

What is a auto loan deficiency balance?

You are probably aware that your vehicle starts to lose its value as soon as you drive it off of the dealer’s lot. Thus, when your auto lender repossesses your care and sells it, the proceeds from the sale are rarely enough to pay the full amount of what you owe on the loan. This means that there is a deficiency balance left due and you are usually still obligated to pay it.

How does the auto auction work?

Each state has its own laws governing how secured lenders can sell repossessed collateral. Generally speaking, the lender is typically required to provide you with a written notification that your car will be sold. The notice will list the date, time and location of the auction or other type of sale. The borrower should also be informed of whether he or she will remain liable for any remaining deficiency balance, as well as how the borrower can find out how much is still owed on the loan.

Asset sales can be private or open to the public. A private sale is conducted for certain parties who the lender believes will be interested in buying the collateral being sold, while a public sale is open to anyone. Private sales are only allowed in certain circumstances, but many cars are routinely sold at private sales to auto dealers. If the sale notification fails to inform you of the date or location of the sale, you should contact the lender and request that the information be given to you. A borrower has the right to attend either type of sale of his or her own vehicle.

What does “commercially reasonable” mean?

The lender must sell a repossessed vehicle in a ‘commercially reasonable’ manner. There are numerous interpretations of this standard, but because most car sales are primarily attended by used car dealers, the bids are low and the sales are still considered to be commercially reasonable. This means that most borrowers are left owing a pretty substantial deficiency balance.

How is the deficiency balance calculated?

When the sale has ended and your case has been sold, the sale price is subtracted from the total amount you owe on your vehicle loan. The remaining amount plus the expenses incurred by the lender in seizing, storing and selling the vehicle are added together for the total deficiency balance.

If you have questions about your auto loan or a deficiency balance, we have the answers. Call us today to schedule your initial consultation. Our office is located in Melbourne, but we proudly serve individuals and businesses across the State of Florida.

The information on this blog or any blog is not intended as, and should not be taken as, legal advice.

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2 Responses
  1. Audrey Kinley

    I think my most important thing about getting a car is my budget. My sister went to look for a car a few months ago, and she didn’t set a budget. So she ended up spending way too much on a car she doesn’t even like. I think that I may need a loan to buy a car, my budget is small. Yet, I also need a good car that could last a few years.

    1. Michael Faro

      Hi Audrey,

      Thank you for your post. I agree, it is very important to set a budget before you go out looking. “What can I afford?” is NOT a good question to ask a car salesman (or a real estate agent, or anyone else who gets paid a commission based on what you buy). Before you can budget for a car, you need an overall budget. Many people find recommendations, often put out by the government, and assume that is appropriate for them. For example, the government thinks that no more than 31% of your gross income should go to your housing expenses (mortgage, taxes, insurance, association fees). People misconstrue that to mean that 31% of their gross income should go to housing (notice we went from “no more than 31%” to essentially “you should spend 31%”). That doesn’t make much sense if spending that much leaves you with no money for food. Trying to budget for a car without first making an overall budget is liking trying to get directions from someone without telling them where you are.

      Once you have a budget worked out and know how much you can afford, start looking at cars. Use the online tools that are available. You can search and find out how many warranty claims have been made against each model year, essentially letting you know which cars you can expect will have problems, and which generally have few problems. A good rule of thumb is also to stay away from the first model year or any major design change years. Any new design is going to have some kinks, and usually they have been worked out after a few years of production.

      Once you have picked out a car, it is time to shop for a loan. Before you apply for a loan it is a good idea to check your credit on your own. “Hard Inquiries” do hurt your score, so you want to minimize them, and you certainly don’t want to take the damage of a hard inquiry to get denied due to inaccurate reporting. You can check your report from the major credit bureaus for free once a year through You can also use sites like to look at some reporting and see some credit scores. If your credit score is suffering due to inaccurate reporting or bad debt, feel free to give us a call if you live in Florida. We can help resolve bad debt through settlement or bankruptcy, and we can challenge inaccurate reporting on your credit.


      Mike Faro

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