Even after your car is repossessed, your financial obligations might not be over. It’s crucial to understand the costs you may still be responsible for once your lender repossesses your vehicle. Here’s a breakdown of what typically happens when your car is repossessed and what you need to know about the financial aftermath.
Understanding Repossession Fees
When your lender repossesses your car, they will usually charge a fee to cover the costs of picking it up and storing it. However, it’s important to know that these repossession fees must be reasonable. What is considered “reasonable” can be determined by a court and often depends on factors like the type of vehicle, the method of repossession, and where the vehicle was taken from. You have the right to request a detailed list of all repossession costs from your lender so you can understand exactly what you’re being charged for.
Deficiency Balance and Surplus Explained
After repossession, the lender will typically sell your car. This sale can lead to either a deficiency balance or a surplus, depending on the sale price compared to your outstanding loan amount and repossession fees.
If the car sells for less than what you still owe on the loan, plus the repossession fees, you may be required to pay the “deficiency balance.” For instance, if you still owe $10,000 and your car is sold for $7,500, you would owe a deficiency of $2,500, in addition to any repossession fees. Failure to pay this deficiency balance can lead the lender to hire a debt collector to pursue the outstanding amount.
Conversely, if your car is sold for more than what you owe, after covering the repossession fees and loan balance, you are entitled to receive the surplus funds. Using the same example, if the car was sold for $12,000, you would be entitled to the amount exceeding your debt and fees.
Lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” It’s in your best interest to be informed about the sale price of your vehicle. If you believe the sale price was unreasonably low, it is advisable to consult with an attorney to understand your rights and options.
You also have rights under your state laws which may provide further protections. For more detailed information, you can reach out to your state attorney general or your state consumer protection office. Seeking advice from a private attorney or your local legal services office can also provide personalized guidance based on your specific situation.
