Can You Finance A Salvage Title Car?

What is a Salvage Title?

A salvage title means the car has a history of major damage from an accident or natural disaster and has been deemed a total loss by an insurance company. When the vehicle cannot be repaired or the cost of fixing it exceeds the value of the car, it is considered a total loss and given a salvage title. Depending on the state, a salvage title is typically given when the cost of repairing the vehicle would be 60% to 100% of the car’s value.

Examples of damage that could lead to total loss include:

• Fire
• Flood
• Hail or other weather events
• Accident
• Theft
• Vandalism

Rebuilt Titles vs. Salvage Titles

A branded title means the vehicle in question has a title other than "clean". There are a few different types of branded car titles. Salvage titles and rebuilt titles are the most common.

Some salvage title cars may end up in the junkyard, be sold for parts, or as “fix it” projects. If a car has a salvage title, it cannot legally be driven on the road until it’s repaired. Exact requirements about salvage titles differ by state, so be sure to check your state’s laws.

A rebuilt title, also called reconstructed or repaired, means the vehicle was once listed with a salvage title and has been repaired enough to operate and pass an inspection. Some states do not have this title, meaning the repaired car could still have a salvage title after inspection. Cars with rebuilt titles can be insured and driven legally.

Should You Buy a Car with a Salvage Title?

Buying a car with a salvage title or even a rebuilt title can be risky. Most franchised dealerships do not sell or buy vehicles with these titles, so you’re likely putting your trust in private sellers or a small used car dealership. Here’s what you should consider before buying a car with a salvage title.

Hidden Costs

Salvage cars can end up costing more than you bargain for – if you’re not careful. It can often be challenging to confirm the extent of the car’s damage and whether it was properly repaired. It’s not uncommon for people who rebuild these vehicles to take shortcuts or use faulty or cheap parts and equipment to fix them. There’s also potential for fraud if a private seller isn’t forthcoming about the damage the vehicle sustained.

Consider this: You find the car you’ve been looking for from a private seller for thousands of dollars under market value. The seller tells you that it has only suffered cosmetic damage that’s been fixed. Yet a few weeks later, you experience steering issues and see warning lights on the dashboard. A trip to the shop could end up costing thousands more than the selling price, which is why it's always a good idea to get a pre-purchase inspection from a certified mechanic.

Insurance Challenges

Salvage titles cannot legally be driven on the road. Therefore, it’s not possible to get proper insurance on a vehicle with this title.

Insurance companies often hesitate to offer coverage because it’s hard to accurately value a vehicle that’s been declared a total loss. If the car has been rebuilt and passes an inspection, it’s possible to find an insurance company that will offer coverage. Still, it may be difficult, and certain types of coverage may not be available.

Save Money

For most buyers, the appeal of a salvage title is the potential for big savings. Cars with these titles are typically priced 20% to 40% below market value, according to Kelly Blue Book. A private appraisal to determine the market value of the car is still recommended since every car’s salvage history differs.

If you’re a fixer-upper and have mechanical knowledge to repair a salvage title car, it could be a viable option. A salvage title car could also be worth considering if you know the seller and have a detailed history of the vehicle.

Lender Requirements For Salvage Titles

Financing salvage title cars is no easy feat, especially since these vehicles are deemed total losses by insurance companies. A majority of traditional lenders will not finance vehicles that are considered risky and unsafe to drive. If a salvage title is repaired and upgraded to a rebuilt title, it may be possible to get financing, though it will still be difficult.

What lenders look for when financing salvage title cars

It’s important to know what a potential lender will want to see if you're looking to finance a branded title car. Key factors lenders consider for branded title financing include:

• Title status–Lenders won’t finance a salvage title. However, if a salvage title has been repaired and given a rebuilt title, it’s more likely to be considered for financing.
• Mechanic’s statement–Documents that prove the vehicle was professionally rehabilitated and passed safety inspections can help increase your chances of approval.
• Insurance coverage–Proof that an insurance company is willing to cover the car, along with the specifics on the coverage (collision, liability, etc.), is often required.
• Credit score–If you have strong credit, it could improve your approval chances since lenders will view you as a less risky borrower.

Financing Options for Salvage Title Vehicles

Financing a branded title can be tough, as loan options are limited. In general, large banks will not offer financing for branded car titles. If you need financing for a salvage title, a smaller bank, a credit union, or a subprime lender could be your best bet.

Credit Unions

A credit union can be a great option for financing a salvage title, especially if you are a member in good standing. That’s because credit unions are often more flexible and focused on the financial needs of their members than larger banks.

Subprime Lenders

Subprime lenders are worth considering, especially if you have bad credit. Subprime lenders work with borrowers who have gone through bankruptcy, have limited or zero credit history, have a credit score below 660, or have had a car repossessed. Subprime lenders tend to have higher interest rates and stricter terms.

Personal Loans

Personal loans can be an alternative to a traditional auto loan. Instead of focusing on the car’s condition or title status, lenders will consider your credit score, income, and debt-to-income ratio.

Personal loans are considered unsecured, and lenders do not use the car as collateral. This typically equates to higher interest rates. Since personal loans typically have lower borrowing limits, a personal loan might not cover the full amount of the salvage title car or the needed repairs.

How to Qualify for Salvage Title Car Loans

There are several ways you can increase your likelihood of qualifying for financing on a branded title car. First, make sure the car has been properly repaired and has passed an inspection. This should make the car eligible for a rebuilt title, which has a higher chance of being financed.

Providing lenders with the following documentation can also help increase your approval chances:

• The car’s rebuild history and receipts
• Vehicle inspection reports
• VIN and title document
• Proof of insurance
• Credit score

Proof of income and your ability to repay the loan are other factors lenders consider when approving a branded title loan.

The Bottom Line

There are a few advantages to buying a salvage car title. Not only are they low-cost, but salvage title vehicles can also be ideal for car enthusiasts or mechanics looking for spare parts.

Though you could save money upfront, it could end up costing you a lot of money in repairs in the long term. Additionally, unless you know the exact extent of the car’s damage, safety is perhaps the biggest risk of buying a salvage vehicle.

While it is possible to finance a branded title vehicle, the process is usually more challenging because of lender and insurance limitations. For the average car buyer, the risks may outweigh the benefits.

Tips for potential buyers

If the potential savings justify the risks and you’re considering a salvage car title, you should take some precautions before buying:

1. Get the vehicle’s history report: Do your research on the extent of the car’s damage by getting a vehicle history report from the National Motor Vehicle Title Information System (NMVTIS) or a trusted company like CARFAX.
2. Get the car inspected: Take the car to a trusted mechanic for a thorough inspection. Pre-purchase inspections will cost you. However, a pro can determine the car’s structural integrity and its systems and provide peace of mind that it’s safe to drive and there aren’t any hidden issues.
3. Beware of title washing: Title washing is when a seller fraudulently removes negative information from the title to make the car appear more valuable than it really is. Sellers can wash a title by taking it to a state with lower title requirements and applying for a new unbranded title. Titling washing is illegal and can be challenging to spot, so this is where a pre-purchase inspection comes in handy.

FAQs

How does a salvage title affect insurance?

A salvage title means that a car cannot be legally driven on the road. If the car has a rebuilt title and passes inspection after repairs, it can be insured. Rebuilt titles are not covered by some insurance companies, and full coverage might not be an option. You will likely be able to purchase liability or collision coverage.

What should I check before buying a salvage title car?

You should know the title and registration laws in your state, understand why the car was salvaged by getting a detailed vehicle history report, get the car inspected by a certified mechanic, and check insurance availability.

Who will finance a salvage title car?

Lenders will not finance a salvage title car. If a car has a rebuilt title, you’ll most likely get financing from a credit union, subprime lender, or a personal loan.

Can you trade in a car with a salvage title?

Trading in a car with a salvage title can be extremely difficult. Most franchise dealerships do not accept salvage title vehicles as a trade-in because determining the value of the car is a challenge. The two options are to sell to a private party or an independent dealer, but don’t expect much.

Should I opt for a personal loan or auto loan for a salvage title?

Deciding on an auto loan or a personal loan for a salvage title car will depend on your credit, budget, risk tolerance, and the car’s condition.

In general, if a car has a rebuilt title and good repair history, it could behoove you to choose an auto loan if you’re eligible. If you have good credit and the lender deems the car can be financed, an auto loan might also be applicable.

A personal loan could be ideal if you need a small amount of cash, flexibility in how the money is used, or need cash fast because you’re buying from a private seller.