Even after your car is taken away, your financial obligations might not be over. It’s important to understand what happens when your car is repossessed, so you can navigate the process and understand your responsibilities.
Repossession Fees Explained
When your lender repossesses your vehicle, they typically incur costs for picking it up and storing it. These repossession fees are usually passed on to you, the borrower. While lenders are entitled to recoup these expenses, they must be “reasonable.” The definition of “reasonable” isn’t fixed and can be evaluated by a court, taking into account factors like the type of vehicle, the repossession method, and the location of repossession. You have the right to request a detailed breakdown of all repossession costs from your lender to ensure transparency.
Deficiency Balance and Surplus Funds After Vehicle Repossession
After repossession, the lender will usually sell your car to recover the outstanding loan amount. However, the sale price might not always cover the full amount you still owe, including the repossession fees. If the sale price is less than what you owe plus repossession costs, you will be responsible for paying the “deficiency balance”—the remaining difference.
For example, if you still owe $10,000 on your car loan, and after repossession and associated fees, the lender sells it for $7,500, you would owe a deficiency balance of $2,500. The lender can then pursue debt collection methods to recover this balance. It’s worth noting that if your repossessed car is sold for more than what you owe, including fees, you are legally entitled to receive the surplus funds back from the lender.
Lenders are legally obligated to sell your repossessed vehicle in a “commercially reasonable manner.” If you believe the sale price obtained for your car was unfairly low, it is advisable to seek legal counsel to understand your options.
Know Your Rights and Seek Assistance
State laws provide additional protections and rights related to vehicle repossession. To learn more about your specific rights, you can reach out to your state attorney general’s office or your state’s consumer protection agency. Seeking advice from a private attorney or a local legal aid service can also provide personalized guidance based on your situation. Understanding your rights and responsibilities is crucial when facing car repossession.
