Deficiency balance payment plan

A Balanced Payment Plan offers a fixed monthly payment but unlike a Hire Purchase car finance agreement, where the interest rate is fixed, Balanced Payments offer a variable rate which tracks the changes in the Finance House Base Rate, LIBOR or Bank of England Base Rate, depending on what is specified in the agreement. As the relevant rate goes up or down over the period of the contract, so does the amount of interest you pay.

You pay an initial deposit and then the balance in fixed monthly instalments over an agreed term (24-60 months). At the end of the term any variation in interest rates is reconciled and will be settled as either a credit to you, or a charge. Other options available with a Balanced Payment Plan include a final ‘balloon’ payment which has the benefit of reducing your monthly payments by deferring an agreed element of capital until the end (traditionally linked with the depreciation of the vehicle).

Rates are competitive, and Balanced Payments plans tend to be popular with sophisticated borrowers and investors with a good understanding of finance.

  • You do not have the option to return the vehicle at the end of the agreement
  • Any increase in interest rates will mean you pay more under the agreement
  • The facility doesn’t offer the protection of the Consumer Credit Act

The benefits of Balanced Payment Plan

  • Flexible – reducing interest penalty options for early settlement
  • Low deposit – doesn’t tie up cash reserves
  • Fixed monthly payment – perfect for budgeting
  • Tax benefits – Tax allowances for business users
  • Potential savings – save if interest rates fall
  • VAT free – no VAT on payments

The minimum advance for an individual is £25,000, based on a business user declaration but any level is available for limited companies.

Under a Hire Purchase agreement, you usually pay a deposit at the start of the agreement. You then pay the rest of the value of the car in instalments, over a period of between 3 and 5 years. Sometimes also referred to as a Lease Purchase.

PCP is a popular way of financing a vehicle and is usually based upon a Hire Purchase agreement. The main difference is that the vehicle’s value at the end of the agreement is calculated at the start.

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I would not have been able to purchase my last three cars without the help and support of Magnitude. They are always incredibly helpful whenever I have any queries and seem to be able to offer superior quotes to any other finance company. I continue to recommend them to anyone looking to buy a new car.

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I have now had my dream car a few weeks, the finance all sorted via Alex at Magnitude. Brilliant Service, quick and efficient. Highly recommended

N Urwin Jaguar F Type

Alex has helped me with both my previous and new car finance, he is a top guy and seems to get better deals than what I thought was the best in the market… if you need car finance I suggest speaking to him, very helpful and a nice bloke with great rates

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Универсальный англо-русский словарь . Академик.ру . 2011 .

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DEFINITION of 'Deficiency Balance'

The amount owed to a creditor if the sale proceeds from the collateral that secured a loan is less than the outstanding loan balance. A deficiency balance generally arises from distressed situations where an asset has to be sold to recover the balance outstanding on a loan, such as home foreclosures, short sales and car repossessions. A deficiency balance has to be addressed by the borrower, as it constitutes a debt obligation that must be repaid to avoid damage to the borrower's credit history.

BREAKING DOWN 'Deficiency Balance'

For instance, assume the balance outstanding on a car loan is $15,000, and the borrower is unable to service the loan. The lender repossesses the car and sells it at an auction for $10,000. The deficiency balance in this case is $5,000.

As another example, if the amount owed on a delinquent mortgage is $300,000, and the bank that holds the mortgage forecloses and sells the property for $250,000, the deficiency balance is $50,000.

As these examples demonstrate, the size of the deficiency balance is directly proportional to the value of the asset. In the case of a vehicle loan, a deficiency balance can perhaps be addressed by cutting personal expenses and using savings, but in cases where real estate is involved and deficiency balances run into tens of thousands or even hundreds of thousands, there may be few options available to the borrower.

The key point to remember is that you are on the hook for the full amount of the loan taken to purchase an asset. This should be borne in mind if you are tempted to live way beyond your means by buying an expensive car (which is prone to rapid depreciation) or upscale vacation condo.

Another point to keep in mind is that repossessed assets are typically sold well below their fair market value in an auction situation, so it may be best to explore alternative means (such as a private sale) to receive close to market value for the asset, in order to reduce the dollar amount of the deficiency balance.

It should be noted that the laws regarding deficiency balances in the case of a foreclosure or short sale involving a primary residence are quite complex, and someone who is confronted with such a situation should seek legal advice from a qualified practitioner.

Correction of Balance of Payments (BoP) Deficit

Balance of Payments Adjustments

The short-term and small deficits in balance of payments are quite likely to emerge in wide range of international transactions. These deficits do not call for immediate corrective actions. More importantly, irregular short-term changes in the domestic economic policies with a view to remove the short-term deficits in balance of payments may do more harms than good to the economy. Since these changes cause dislocations in the process of reallocation of resources and short-term fluctuations in the economy. Therefore, short-term deficits of smaller magnitude are not a serious concern to the policy makers. A constant deficit indicates that the country’s imports dominates exports or depreciation of its foreign exchange and gold reserves. These countries lose their international liquidity and credibility. This situation often leads to compromise with economic and political independence of these countries.

India faced a similar situation in July 1990. Therefore, a country facing constant large deficits in balance of payments is forced to adopt corrective measures, such as changes in its internal economic policies for wiping out the deficits, or at least to bring it in a manageable size. It is a widely accepted view that the conditions for an automatic corrective mechanism visualized under gold standard, based on international price mechanism do not exist. Therefore, the government has no option but to intervene with the market conditions of demand and supply with the policy measures available to them. It should be borne in mind that policy-mix in this regard may vary from country to country and from time to time depending on the prevailing economic conditions.

Measures used to Correct Deficits in Balance of Payments

The various measures used to correct deficits in balance of payments are as follows:

  • Indirect measures to correct adverse BoP: Under free trade system, the deficits in balance of payments arise either due to greater aggregate domestic demand for goods and services than the total domestic supply of goods and services or domestic prices are significantly higher than the foreign prices. Thus, the deficit may be removed either by increasing domestic production at an internationally comparable cost of production or by reducing excess demand or by using the two methods simultaneously. It may be very difficult to increase the output in the short-run, specially when a country is close to full-employment or when there are other limiting factors to its industrial growth. Therefore the only way to reduce deficit is to reduce the demand for foreign goods.
  • Income and Expenditure Policies: Here we discuss how reduction in income can lead to reduction in demand and how it helps reducing the deficit in the balance of payments. The two policy tools to change disposable income are monetary and fiscal policies. Monetary policy operates on the demand for and supply of money while fiscal policy operates on the disposable income of the people. The working and efficacy on these policies as instruments of solving balance of payment problem is described below.

The instruments of monetary policy include discount and bank rate policy, open market operations, statutory reserve ratios and selective credit controls. Of these, first two instruments are adopted in the context of balance of payment policy. This however should not mean that other instruments are not relevant. The government is free to choose any or all of these instruments and adopt them simultaneously.

To solve the problem of deficit in the balance of payments, a ‘tight money policy’ or ‘dear money policy’ is adopted. Under ‘dear money’ policy, central bank raise the bank rates and discount rates. Consequently, under normal conditions, the demand for institutional funds for investment decreases. With the fall in investment and through its multiplier effect, income of the people decreases. If marginal propensity to consume is greater than zero, demand for goods and services decreases. The decrease in demand also implies a simultaneous decrease in imports while other things remain same. This is how ‘a tight money policy’ corrects deficit in balance of payments.

The efficiency of ‘tight money policy’ is however doubtful under following conditions: (i) when rates of returns are much higher than the increased bank rate due to inflationary conditions, (ii) when investors have already affected their investment in anticipation of increase in the rate of interest. The tight money policy is then combined with open market operation, i.e., sale of government bonds and securities. These two instruments together help to reduce demand for capital and other goods. Therefore, if all goes well then the deficit in the balance of payments is bound to decrease.

Fiscal policy as a tool of income regulation includes intervention in taxation and public expenditure. Taxation reduces household disposable income. Direct taxes directly transfer the household income to the public reserves while indirect taxes serve the same purpose through increased prices of the taxed commodities. Direct taxes reduce personal savings directly in a greater amount while indirect taxes do it in a relatively smaller amount. Taxation reduces the disposable income of the household and thereby the aggregate demand including the demand for imports. Taxation also helps to curtail investment by taxing capital at progressive rates.

The government can reduce income and demand also by adopting the policy of surplus budgeting in which the government keeps its expenditure less than its revenue. Taxation reduces disposable income of household and public expenditure increases household’s income and their purchasing power. However, multiplier effect of public expenditure is greater by one than the multiplier effect of taxation. Therefore, while adopting surplus-budget policy due consideration should be given to this fact. To account for this fact, it is necessary that surplus is so large that the total cumulative effect of taxation on disposable income exceeds the effect of public expenditure. The reduction in income that will be necessary to achieve a certain given target of reducing balance of payments deficit depends on the rate foreign trade multiplier.

Exchange Depreciation and Devaluation

Reducing excess demand through price measures involves changing relative prices of imports and exports. Relative prices of imports and exports can be changed through exchange depreciation and devaluation. Exchange depreciation refers to fall in the value of home currency in terms of foreign currency and devaluation refers to fall in the value of home currency in terms of gold. However, ill terms of purchasing power, parity between devaluation and depreciation turns out to be the same and its impact on foreign demand is also the same. Therefore, we shall consider them as one in their role of correcting adverse balance of payments.

Options If You Owe a Deficiency After Car Reposession

Tips on what to do if your car is repossessed and you still owe money to your lender (called a deficiency).

If you default on your car loan and the lender repossesses it, you may still owed money to the lender, called a deficiency balance. (Here's how car repossession works.) If you don’t have any defenses to the deficiency, you have several options for dealing with it. You can pay the deficiency in full, make payment arrangements with the lender to pay the debt over time, or negotiate a settlement. In some cases, it might be best to do nothing; in others you may want to consider bankruptcy. Read on to learn about ways to handle a deficiency you owed after your car is repossessed.

If you default on your car loan and the lender repossesses it, it will usually sell the car (either through a private sale or at a public auction) in order to recoup what you owe. In many cases, the sale proceeds are not enough to cover the remaining balance on the loan plus the costs the lender incurred in repossessing the car. If that happens, you’ll owe the difference – called the deficiency. (Learn more about deficiency after car repossession.)

Example. Say you owe $12,000 on the loan before defaulting on the payments. The lender repossesses the car and sells it at auction for $3,500. The lender incurs repossession and auction fees of $150. You would owe a deficiency of $9,350 ($12,000 - $3,500 - $150 = $9,350.).

If you owe a deficiency, in most states the lender can try to collect it from you. Some states restrict the lender’s ability to collect a under certain circumstances. Those circumstances rarely apply in car repossession cases though. (To learn about those state restrictions, see State Laws on Deficiency After Car Repossession.)

If you don’t pay, the lender can sue you. If you don’t have a defense to the deficiency, the lender will get a judgment against you. Once the lender has a judgment, it can use various methods to collect it, including garnishing your wages or taking funds from your bank account. (Learn more about how judgment creditors can collect.)

Options if You Owe a Deficiency

Generally, if you do not have any defenses to the deficiency, you have the following options to deal with it.

If you owe a deficiency and have resources available, you may choose to simply pay the full amount you owe. This is potentially a good course of action when the deficiency is relatively small and you have access to enough money to cover the balance. Sometimes, it makes sense to obtain a low interest loan from a bank, credit union, friend, or family member. This option allows you pay the lender in full now to avoid stressful collection activity and added interest charges.

Make Payment Arrangements With the Lender

Many lenders will be willing to set up a reasonable payment plan to allow you to pay off the deficiency balance over time. The lender may require that you set up automatic payments from your bank to ensure you make your scheduled payments. Some lenders will ask you to sign a legal agreement, called a stipulated judgment, in which you agree to pay the full amount of the deficiency according to the agreed upon payment plan. If you don’t make the payments as agreed, the judgment permits the lender to begin garnishing your wages or bank accounts without having to go to court first.

Many lenders are willing to settle the deficiency debt for a percentage of what you owe. Some lenders will ask for proof of financial hardship before agreeing to settle. You may be able to show financial hardship if you are unemployed, laid off, or disabled, or by providing a tax return or paystubs and a list of living expenses to show the lender why you cannot pay the debt in full. The settlement will likely need to be made in a lump sum and many lenders will expect payment within ten days to two weeks. The disadvantage to this option is that you’ll have to come up with the lump sum of money. But the benefit is that you may be able to eliminate between 20% to 75% of the debt, on average. Also, keep in mind that there are potential tax consequences when the lender agrees to forgive a portion of the debt you owe. (To learn more, see Tax Consequences of Forgiven Debt.)

If none of the above options is a valid option for you, doing nothing may be your best choice. While your lender may be entitled to collect the deficiency from you, it may not attempt to do so for some time, if ever. You may want to wait until it is actively pursuing the debt before you decide on a repayment option. If your lender is actively trying to collect the debt, but you are judgment proof, meaning you have little or no income or assets that your lender can take, you may not need to take any action at all.

Finally, if the deficiency is not the only debt troubling you, filing for bankruptcy may be a good option. Most of the time, you can discharge a deficiency after a vehicle repossession along with your other unsecured debts.

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