Car repossession occurs when your lender takes back your vehicle because you’ve fallen behind on your car loan payments. Losing your car is a significant event, but it’s crucial to understand that repossession doesn’t necessarily end your financial obligations related to the vehicle. Even after the physical loss of your car, you may still be responsible for certain costs. This article will clarify what it means to get your car repoed and what financial aspects you need to be aware of.
Understanding Repossession Fees
When your car is repossessed, the lender typically incurs costs to pick up and store the vehicle. These costs are usually passed on to you in the form of repossession fees. While lenders are entitled to charge these fees, they must be “reasonable.”
The definition of “reasonable” isn’t fixed and can be interpreted by courts depending on specific circumstances. Factors influencing what’s considered reasonable include the type of vehicle, the method of repossession (peaceful or requiring more effort), and the location from where the car was taken. As a borrower, you have the right to request a detailed breakdown of all repossession costs from your lender to ensure transparency and identify any potentially unreasonable charges.
Deficiency Balance and Surplus After Vehicle Sale
After repossession, the lender will typically sell the vehicle. This sale aims to recover the outstanding loan amount. However, the sale price might not always cover the full amount you still owe on the loan, along with the repossession fees. This is where the concepts of “deficiency balance” and “surplus” come into play.
If the car sells for less than the total amount you owe (including the loan balance and repossession fees), you are generally responsible for paying the “deficiency balance.” For example, if you still owe $10,000 on your car loan, and after repossession and sale, the car is sold for $7,500, you would owe a deficiency of $2,500, plus the repossession fees. Failure to pay this deficiency balance can lead the lender to hire a debt collector to recover the amount.
Conversely, if the vehicle is sold for more than what you owe, including fees, you are legally entitled to receive the “surplus.” Using the previous example, if the car was sold for $12,000 instead of $7,500, you would be entitled to receive the $2,000 surplus after the lender covers the $10,000 loan balance.
It’s important to note that lenders are legally obligated to sell the repossessed car in a “commercially reasonable manner.” This means the sale process should be fair and designed to achieve a reasonable market price for the vehicle. If you believe the sale price obtained by the lender was unreasonably low, you have the right to question it and potentially seek legal advice to explore your options. Consulting with an attorney can help you understand your rights and ensure the lender has acted appropriately throughout the repossession and sale process. Additionally, your state’s laws may provide further protections and rights related to vehicle repossession. You can find more information by contacting your state attorney general or consumer protection office.
