Even after your car is taken back by the lender, your financial obligations might not be over. Understanding what happens during and after a car repossession is crucial to managing the situation effectively. Here’s a breakdown of what you need to know if your car is repossessed.
Understanding Repossession Fees
When your lender repossesses your vehicle, they will typically charge you a fee to cover the costs of picking it up and storing it. It’s important to know that these repossession fees must be reasonable. The definition of “reasonable” isn’t fixed; it’s usually determined by courts based on factors like the type of vehicle, the method of repossession (e.g., towing), and where the car was located when repossessed.
To ensure you’re being charged fairly, always ask your lender for a detailed list of all repossession costs. This transparency allows you to review the charges and question anything that seems excessive.
Deficiency Balance and Surplus Explained
After repossession, the lender will usually sell your car. This sale has significant financial implications for you. If the sale price of the car is less than the outstanding balance on your loan, plus the repossession fees, you will be responsible for paying the difference. This difference is known as a deficiency balance.
Conversely, if your car sells for more than what you owe on the loan, after covering repossession fees and sale expenses, you are legally entitled to receive the surplus funds.
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 for the car. It’s in your best interest to be aware of the sale price of your vehicle. If you believe the sale price was unreasonably low, you have the right to contest it. Consider consulting with an attorney to understand your options if you suspect the sale was not commercially reasonable.
For instance, imagine you still owe $10,000 on your car loan, and after repossession, the lender sells it for $7,500. In this scenario, you would owe a deficiency balance of $2,500, in addition to any repossession fees. If you fail to pay this balance, the lender has the right to hire a debt collector to recover the amount.
On the other hand, if the car in the same example was sold for $12,000, you would be entitled to receive the $2,000 surplus after the loan and fees are settled.
Know Your Rights and Seek Assistance
Your rights in a car repossession situation can vary depending on your state’s laws. To gain a comprehensive understanding of your rights, you can reach out to your state attorney general or your state consumer protection office. These resources can provide valuable information specific to your location.
Additionally, seeking advice from a private attorney or your local legal services office can be beneficial. They can offer personalized guidance and help you navigate the legal complexities of car repossession, ensuring your rights are protected throughout the process.
