Even after your car is repossessed, your financial responsibility might not end. You could still owe money to your lender. Here’s a breakdown of what to expect when your car is repossessed and you still owe on the loan.
Understanding Repossession Fees
When your lender repossesses your vehicle, they will typically charge fees to cover the costs of picking it up and storing it. These are known as repossession fees. While lenders can charge these fees, they must be reasonable. What is considered “reasonable” isn’t fixed, but is usually determined by courts based on factors like the type of vehicle, the repossession method, and the location of repossession. You have the right to request a detailed list of all repossession costs from your lender so you understand exactly what you’re being charged for.
Deficiency Balance vs. Surplus After Car Repossession
After repossession, the lender will usually sell your car. This sale determines whether you still owe money (a deficiency balance) or if you are entitled to receive money back (a surplus).
A deficiency balance occurs when the sale price of the repossessed car is less than the outstanding loan amount plus repossession fees. In this situation, you are responsible for paying this difference to the lender. For example, if you owe $10,000 on your car loan, and after repossession and fees, the car is sold for $7,500, you would owe a deficiency balance of $2,500. If you fail to pay this balance, the lender may employ a debt collector to recover the amount.
Conversely, a surplus happens if the car is sold for more than what you owe on the loan, including repossession fees. In this case, you are legally entitled to receive the surplus funds back from the lender. Using the same example, if your car was sold for $12,000, you would be entitled to receive the $2,000 surplus after your $10,000 loan is covered.
It’s crucial to understand that lenders are legally obligated to sell your repossessed car in a “commercially reasonable manner.” This means the sale process should be fair and designed to achieve the best possible price for the vehicle. If you believe the sale price was unreasonably low, you should consider seeking legal advice from an attorney to explore your options.
Your Rights and Where to Find Help
State laws provide additional protections and rights related to car repossession. You can find more detailed information about your rights by contacting your state attorney general or your state consumer protection office. They can provide guidance specific to your location. Additionally, consulting with a private attorney or your local legal services office can offer personalized advice and ensure your rights are protected throughout the repossession process and beyond.
