When financial situations take a turn, sometimes people can no longer keep up with their loan agreements, including car loans. This can unfortunately lead to a car being repossessed by the lender, often a bank or financial institution. These repossessed vehicles are commonly known as bank repo cars. But what is a bank repo car exactly, and what happens when a car is repossessed?
A bank repo car, or simply a repo car, is a vehicle that a lender, typically a bank, credit union, or finance company, has taken back from a borrower due to failure to keep up with loan payments. When you finance a car, the lender technically holds a lien on the vehicle, meaning they have a legal right to it until the loan is fully paid. If a borrower defaults on their car loan by missing payments, the lender has the right to repossess the car. This repossession is the first step in the process that leads to the vehicle becoming a bank repo car.
After a car is repossessed, the lender doesn’t want to keep it. Their business is lending money, not storing or selling cars. Therefore, they will typically sell the bank repo car to recoup the outstanding loan amount. This sale often happens through auctions, but lenders may also sell them through dealerships or other channels.
It’s important to understand the financial implications that arise even after a car is repossessed and becomes a bank repo car. Even though you no longer have the vehicle, you might still have financial responsibilities.
Financial Aftermath of a Bank Repo Car
Repossession Fees: Lenders usually charge fees to cover the cost of repossessing the vehicle. These repossession fees can include the cost of hiring a repossession company to pick up the car and storage fees. While these fees must be “reasonable,” what is considered reasonable can be determined by courts and varies based on the vehicle type, the repossession method, and location. You have the right to request a detailed list of these repossession costs from your lender.
Deficiency Balance or Surplus: Once the bank repo car is sold, usually at auction, the sale price is used to pay off the remaining loan balance and the repossession fees. However, the sale price might not cover the full amount owed.
- Deficiency Balance: If the sale price of the bank repo car is less than what you still owe on the loan plus repossession expenses, you are responsible for paying the difference. This is known as the deficiency balance. For example, if you owed $10,000 and the car sells for $7,500, you may owe $2,500 plus repossession fees. Failure to pay this balance can lead the lender to hire a debt collector.
- Surplus: Conversely, if the bank repo car sells for more than what you owe (after covering fees), you are legally entitled to receive the surplus funds.
Lenders are legally required to sell the repossessed car in a “commercially reasonable manner.” If you believe the sale price of your bank repo car was unreasonably low, it’s advisable to consult with an attorney to understand your rights and options. State laws can also provide additional rights and protections in repossession situations. You can find resources through your state attorney general or consumer protection office.
Understanding what is a bank repo car and the process involved is crucial for both borrowers and potential buyers. For borrowers, it highlights the importance of managing car loans responsibly and understanding the financial consequences of repossession. For buyers, bank repo cars can sometimes represent an opportunity to purchase a vehicle at a lower price, but it’s essential to do thorough research and inspections before making a purchase.
