Car repossession can feel like the end of the road when you’ve fallen behind on your auto loan. It’s a stressful experience to lose your vehicle, but many people are unaware that repossession is not necessarily the end of your financial obligations. Even after the lender takes back your car, you might still be responsible for further costs. This article clarifies what you need to know about the financial implications after your car is repossessed.
Understanding Repossession Fees
When your lender repossesses your vehicle, they will typically charge a fee to cover the costs of picking it up and storing it. These repossession fees are added to your outstanding loan balance. However, it’s important to know that these fees must be “reasonable.” What is considered reasonable isn’t a fixed amount and is often determined by courts on a case-by-case basis. Factors influencing reasonableness include the type of vehicle, the method of repossession (peaceful or requiring more effort), and the location where the car was taken from. You have the right to request a detailed breakdown of all repossession costs from your lender to ensure transparency and contest any charges that seem excessive.
Deficiency Balance or Surplus After Vehicle Sale
After repossession, the lender will usually sell your car, often through auction. The proceeds from this sale are used to reduce your outstanding debt. However, the sale price might not cover the full amount you still owe on the loan, plus the repossession expenses. If the sale price is less than what you owe, you may be held responsible for paying the “deficiency balance.” This deficiency is the difference between your loan balance, plus repossession costs, and the car’s sale price.
For example, imagine you still owe $10,000 on your car loan, and the repossession fees amount to $500. If the lender sells the car for $7,500, you would owe a deficiency balance of $3,000 ($10,000 + $500 – $7,500 = $3,000). The lender can then pursue you to collect this deficiency, potentially even hiring a debt collector.
On the other hand, if your car sells for more than you owe (after covering fees and the loan balance), you are legally entitled to the surplus funds. Using the same example, if the car sold for $12,000, you would be entitled to a surplus of $1,500 ($12,000 – $10,000 – $500 = $1,500).
It’s crucial to understand that lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” This means the sale process should be fair and designed to achieve a reasonable market price. If you believe the sale price was unreasonably low, you have the right to contest it and should consider seeking legal advice. Consulting with an attorney can help you understand your rights and options if you suspect the sale wasn’t commercially reasonable.
Know Your Rights and Seek Advice
Beyond these federal guidelines, your state laws may provide additional protections and rights related to car repossession and deficiency balances. To fully understand your rights, you can reach out to your state attorney general’s office or your state consumer protection agency. These resources can provide valuable information specific to your location. Furthermore, seeking advice from a private attorney or a local legal aid service can offer personalized guidance based on your specific situation and ensure your rights are protected throughout the repossession process. Understanding what happens when your car is repossessed is the first step towards managing the financial consequences and protecting your interests.
