What Repossession Fees Mean For You

Repossession fees are what creditors pay to repossess your car. Towing, storage, and auction fees are common examples. If you’re delinquent on your car loan and your car is repossessed, those fees are passed on to you. You must pay them to get your car back. The individual expenses that make up the total vary by state. Some states favor lenders, and others award borrowers more rights. But knowing that all auto loans are “secured” by the vehicle, repossession is a fact of life no matter where you live. 

No borrower is exempt from repossession fees. You don’t want repossession or repossession fees weighing down your credit score. Nor do you want to be sued for the deficiency balance if the lender cannot recover the loan amount through public auction. Keep reading to find out more about repossession and what repossession fees mean for you. 

How Does Car Repossession Work?

Unlike credit cards, student loans, or medical bills, car loans are “secured” by personal property, namely, your car. Vehicle repossession is the process by which lenders take back their property when borrowers fall short on paying their auto loans. State law dictates how much notice or time borrowers have before losing their cars, but the basic process is the same. If you miss even one payment, lenders can send in repossession agents to take the car back in some states. 

Lenders must at least notify late payers about the location of their vehicles and ways to get their cars back. Drivers can “redeem” their cars by paying what’s left owing, late fees, interest, and repossession fees. But it has to be in one lump sum. Redemption makes sense if the car’s fair market value is less than the loan balance. If your loan is almost up, it’s doable. The drawback is you have to have enough money to pay upfront.

You may also get your car back by agreeing to reinstate the terms of the loan. Of course, you would first have to make your loan current by making up for past due payments. You will also have to pay late fees, repossession costs, and interest before continuing monthly payments. Like redemption, reinstatement requires paying the remaining balance and extra fees. Reinstatement just “cushions” the blow by spreading the entire amount due over time. 

In both cases, terms are negotiable and lenders may be willing to accept less money if they know the car won’t sell for much at public auction. If neither is possible, the lender will be forced to go through the hassle of repossessing the car and selling it at auction, which rarely pays off the full balance you owe on the loan. Rarely is this the case. So it’s worth calling your lender if you know you’re going to miss a car payment. The two of you can try to work out a solution that doesn’t involve the repo man or a public auction.

What Fees Are Involved with Repossession?

There are several costs that go into repossessing a car. Repo men don’t work for free and tow trucks cost money. Don’t forget the space your car takes up in a storage lot. Real estate isn’t cheap. Depending on which state you live in, lenders may also have to pay legal fees and court costs to take back the vehicle. If your car was repossessed, just know that some of the expense in making that happen include:

• The principal balance on the loan

• Unpaid interest on the payments

• Late fees that vary by contract

• Towing and storage fees

• Public auction fees

• County or city fees

• Attorney's fees

• Court fees

Together, these fees can add up to hundreds or thousands of dollars. If you’ve ever had a car towed, you know this total can be just for one day. Sitting in the repo lot for a few days can cost several thousand dollars. Not counting the missed payments, repossession fees alone can be more than the car’s worth. If you know the saying “a car depreciates as soon as it leaves the lot,” you can understand why. 

Now imagine borrowers hiding their cars, making it harder to repossess. Or lenders who have to pay municipal fees to file reports and tell the police when they’re coming to repossess. The more difficult it gets for lenders to collect the car, the higher the repossession costs. Having costly repossession fees on your credit history can impact you for several years into the future, significantly lowering your credit score. 

Having bad credit will make it more difficult to buy a house or take out future loans. Financial institutions like credit unions are less likely to lend to risky borrowers. They can easily measure that risk by getting your credit report from a credit bureau. The report will include late payments on any loan agreement. 

When it comes to public auction, the lender is required to sell the car in a “reasonable manner” and give you the chance to attend the auction and bid on your car. But public auctions usually involve many cars, not just your own. The more cars auctioned off like this, the less likely the sales price will cover the full amount due. To make up for the difference, the lender can sue the borrower for this “deficiency balance.” If you’re being sued, you’ll receive a summons. Don’t ignore it!  Doing so may result in a default judgment, which you must avoid at any cost.

Avoiding Repossession Fees

The truth is, borrowers don’t want to lose their cars and lenders don’t want to fork up the cash needed to collect them. Car repossession is expensive for both parties, making lenders more likely to work with borrowers. Call your lender and see. But above all, be upfront with your lender as soon as you know you won’t be able to make this month’s car payment. Lenders would rather work with car owners on a payment plan than incur repossession fees.

Also, be honest about your ability to make future payments. If you know you won’t be able to afford the car, you can try selling it to pay off the outstanding balance. A private sale can fetch more than a public auction and keep your account from being sent to debt collection. You can also willingly surrender the car by taking it back to the dealership.  Voluntary repossession may allow you to negotiate with your lender about how much money you still owe. Some lenders are willing to waive some fees and costs to avoid the hassle of chasing down and towing cars.

Using Bankruptcy to Help You Avoid Repossession

If your car is in danger of repossession, consider filing bankruptcy to help you avoid repossession and repossession fees. Depending on your financial situation, Chapter 7 or Chapter 13 bankruptcy is available. You’ll want to learn more about the differences between the two before deciding which option is best. 

Both Chapter 7 and Chapter 13 bankruptcies, once filed with U.S. bankruptcy courts, ward off creditors to give you a breathing spell. This “automatic stay” applies to all collection activities, including repossession.

Chapter 7 is more common and often preferable because it’s cheaper and results in a discharge three to four months after filing. Even if you haven’t paid off your car, you get to keep it after signing a “reaffirmation agreement” promising to remain personally liable for loan payments. 

The downside is Chapter 7 does not help you get your car back after a repossession. If you were able to do so before filing, it may not even help you get out of the fees and costs from the repossession as a reaffirmation agreement typically covers the full amount you owe.  It also typically doesn’t deal with a high interest rate or high monthly payments. So, be mindful about whether you can afford the car before signing a reaffirmation agreement. High monthly payments after a discharge take some of the “freshness” away from a new start.

If you make “too much” money, Chapter 7 won’t be an option because it means you can afford to make monthly payments in a 3-5 year repayment plan.

Chapter 13, on the other hand, is preferable if you have a high-interest-rate car loan or negative equity from a trade-in. Negative equity is when your car is worth less than the money you owe on the loan and sometimes results from trading in a car with a loan balance higher than its value. 

Unlike Chapter 7, Chapter 13 offers reduced interest rates and can even be used to reduce the balance owed. Chapter 13 may require getting an attorney because it is more complex and riskier to file alone than Chapter 7.

If you can’t afford a bankruptcy attorney to file Chapter 7 bankruptcy, Upsolve offers a free tool to file a case yourself. Upsolve’s tool walks you through the questions you need to answer to prepare your bankruptcy forms, then generates the forms packet for you. Find out if you’re eligible to use Upsolve’s free tool by answering a few simple questions.

Let’s Summarize…

The repossession process is expensive, damages your credit score, and stays on your record for a long time. It’s possible to avoid high repossession fees by negotiating with your lender for more favorable terms. 

If repossession is the least of your financial woes, consider filing for bankruptcy. It not only stops repossession (at least temporarily) but is a powerful debt-management tool. If you don’t qualify for Upsolve’s free software to file Chapter 7 yourself, can also work with a local lawyer to figure out what options are available when facing car repossession.