Even after your car is repossessed, your financial obligations to the lender might not be over. It’s crucial to understand that repossession doesn’t automatically erase your debt, and you may still owe money or, in some cases, be entitled to receive funds back. Here’s a breakdown of what you need to know about the financial implications “when they repo a car”.
Repossession Fees Explained
When a lender repossesses your vehicle due to missed payments, they typically incur costs to retrieve it. These “repo” fees are usually passed on to you, the borrower. These fees cover the expenses associated with the repossession process itself, such as the cost of hiring a repossession company and towing the vehicle.
It’s important to note that these repossession costs must be “reasonable.” The definition of “reasonable” can be subjective and is often determined by courts based on specific factors. These factors can include the type of vehicle being repossessed (a standard sedan versus a large truck, for example), the complexity of the repossession process (was it a straightforward pickup or did it involve extra effort?), and the location where the vehicle was recovered. You have the right to request a detailed list of all repossession costs from your lender to ensure transparency and challenge any charges you believe are unreasonable.
Deficiency Balance and Surplus After Car Repossession
After your car is repossessed, the lender will typically sell it, often through an auction. This sale is intended to recoup some of the outstanding loan amount. However, the sale price might not always cover the full amount you still owe on the loan, plus the repossession fees.
This is where the concepts of “deficiency balance” and “surplus” come into play.
Deficiency Balance: If the sale price of your repossessed vehicle is less than the remaining loan balance plus repossession expenses, you will be responsible for paying the difference. This difference is called a “deficiency balance.”
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 (loan) + $500 (fees) – $7,500 (sale price) = $3,000). The lender can then pursue collection of this deficiency balance, potentially even hiring a debt collector.
Surplus: Conversely, if your repossessed car sells for more than what you owe on the loan plus repossession fees, you are legally entitled to receive the surplus funds.
Using the same example, if the car sold for $12,000 instead, the calculation would be: $12,000 (sale price) – $10,000 (loan) – $500 (fees) = $1,500. In this case, the lender would owe you a surplus of $1,500.
Lenders are legally obligated to sell the repossessed vehicle in a “commercially reasonable manner.” This means the sale process must be fair and designed to achieve a reasonable market price for the car. If you suspect that the sale price was unreasonably low, you have the right to consult an attorney to review the sale and explore your legal options.
Alt text: Visual representation of a car being repossessed, highlighting the financial implications for car owners when lenders take back vehicles due to loan default.
Your state laws may provide you with additional rights and protections related to car repossession and deficiency balances. It’s advisable to contact your state attorney general or your state consumer protection office for specific information about the laws in your jurisdiction. Seeking advice from a private attorney or your local legal services office can also provide personalized guidance based on your situation “when they repo a car.”
