Many borrowers assume, "Well, they took my car, so we're even." Unfortunately, that's not always true. You can lose your car and still owe money.
The Auction Process
When a lender takes your car, they sell it at a wholesale auction. These auctions rarely bring top dollar.
- Loan Balance: $5,000
- Repo Fees & Storage: +$500
- Total Debt: $5,500
If the car only sells for $4,000 at auction, there is a shortfall of $1,500.
The Deficiency Balance
That $1,500 difference is called a "deficiency balance." In many jurisdictions, the lender can sue you for this amount. They can garnish wages or levy bank accounts to collect it.
The Surplus: Conversely, if the car sells for $7,000, they must pay you the extra $1,500 (surplus). They cannot keep the profit. If your car is repossessed, ensure you demand a record of the sale price.
Sarah Jenkins
Financial EditorSarah is a financial expert with over 10 years of experience in consumer lending. She is dedicated to transparency in the lending market.
