A salvage title car comes with its own set of risks and limitations. But if you know the car’s history and the person who is selling it to you, a salvage title car may be a good deal in some cases. This article will discuss the pros and cons of buying a car with a salvage title, how to identify, finance, and insure a car with a salvage title, and what steps you can take to get a rebuilt title issued for your car.
Written by Mark P. Cussen, CFP® , CMFC.
Updated September 20, 2021
If you’re looking for a used car and you’d like to find one at a reasonable price, then you may want to consider a salvage title car. These vehicles have been damaged by fire, theft, or a flood, so the insurance company has decided to total the car out. But this can be good news for you, especially if you have the money handy to buy the car outright. Just make sure that the car you buy is in good mechanical condition, safe, and won’t break down a few months after you buy it.
What’s a Salvage Title?
If your car has suffered significant damage in a collision, natural disaster, or other unfortunate circumstance like theft, then your insurance company may decide that it is non-repairable and write it off as a total loss. If this happens, then either you or the insurance company will have to get a salvage certificate for the car. If you intend to keep the car despite the damage, then you’ll have to apply for a salvage branded title. If your insurance company intends to keep the car, then it will have to do so.
A salvage title is a new, modified title showing who owns the car and that the car has been damaged beyond its current market value and declared a total loss by the insurance company. The definition of “total loss” varies by state and insurance company. For example, in Nevada, a car is declared as a total loss if the repair cost exceeds 65% of the car’s current resale value. But the parameters differ in other states. In New York, a car is totaled out if the repair estimate exceeds 75% of the car’s value.
A salvage title tells prospective buyers the kind of damage that has been done to the car. This could be from an accident, flood, fire, or theft. This title will also ensure that the car has not been rebuilt or restored with parts that are defective or stolen. Salvage-titled cars may be sold to people who intend to use them for spare parts or who plan to refurbish and resell them. In other cases, the damaged car is sent to a scrapyard, regardless of its odometer reading or the value of the vehicle.
A salvage title will usually decrease the car’s market value substantially. In many cases, cars with salvage titles are worth 20%-40% less than cars with clean titles. If you are thinking about buying a car with a salvage title, be sure to do your homework and find out what the laws in your state say about salvage titles. It’s often a good idea to get a professional opinion on a rebuilt salvage car before you buy one. In some cases, this may be a good buy, while in others it may be a bad idea. You should also always get a vehicle history report on the car from a reputable source.
Pros and Cons of Buying a Salvage Title Car
A car with a salvage title will almost always be a lot cheaper than a car with a clean title. You can buy a car with a salvage title to use for spare parts or just to drive if you wish. If you already have the parts and knowledge needed to rebuild the car, it might be a smart financial move. But keep in mind that it’s often hard to resell these cars, and the repairs that need to be made to them can be very expensive. For example, if a car has fire or flood damage, it may need mechanical repairs in addition to redoing the interior.
If the car was stolen at some point, then you may have to put in a new security system or replace the locks on the vehicle. You may also find it difficult to get insurance on a car with a salvage title, as insurers tend to be wary of them.
How To Identify a Salvage Title Vehicle
In some cases, a disreputable dealer may try to pass off a salvage title vehicle as one with a clean title. You should check on a car’s history by requesting a CarFax report or other independent report that breaks down a vehicle’s mechanical history. You can also enter the car’s vehicle identification number (VIN) into a car database such as the National Motor Vehicle Title Information System. This can give you more information on the car’s history. Your local law enforcement agency can also do a search to see whether the car has been involved in any crimes or accidents.
What Is a Rebuilt Title?
When a salvaged vehicle has been refurbished to the extent that it can be driven again, then it is usually assigned a rebuilt title. The Department of Motor Vehicles (DMV) in your state will require an inspection before granting this title. Any attempt to pass off a car with a salvage title as having a clean or rebuilt title without the necessary inspection and paperwork is referred to as title laundering or title washing. This is a serious crime in most states.
Getting a rebuilt title on a car is generally a four-step process:
Buy the car if you don’t own it already. Some states only allow those who are specially licensed to rebuild cars to buy a car with a salvage title.
Repair the car. This can be costly and time-consuming. Be sure to keep detailed records of the work that is done and take pictures of the car during the repair process so that you can prove that the car was rebuilt properly.
Once the car is repaired, fill out the necessary paperwork with your state’s DMV to get a mechanical and safety inspection. The DMV will probably require you to submit the bill of sale, the salvage title, and all of the car’s repair records and pictures before it will inspect the car. If you buy a salvaged car in another state, you may have to get the car inspected in the state where you purchase it before you can bring it home.
After the car passes inspection, you’ll have to file additional paperwork and pay more fees. Then you’ll receive the rebuilt title and be able to legally drive your car.
Financing a Salvage Title Car
Getting a loan for a car with a salvage title can be difficult. If you don’t have the money handy to pay for the car in cash, then you’ll probably have to take out a personal loan to finance your purchase. This will probably be more expensive than an auto loan, but it may be your only option if you have to borrow money to buy the car. Many lenders won’t finance salvage vehicles because it’s almost impossible to get collision insurance coverage for them. Lenders require this coverage to protect their investment. Insurers are also wary because of the many mechanical risks that salvage title cars have.
Good Candidates for Buying Salvage Title Cars
If you thoroughly understand the mechanics of a car with a salvage title, know the seller or dealership, and know exactly what repairs need to be made, then you may be a good candidate to buy a salvage title car. This is especially true if you plan on driving the car until it quits without trying to resell it. For example, if the engine in the car has been on fire and you happen to have a new or rebuilt engine for that exact make and model, then you may be wise to buy the car and put in the new engine. Just be sure to keep detailed records of all of the work that has been done to the car and take pictures to back up your documentation.
How To Insure a Salvage Title Car
In most cases, it’s very difficult to get car insurance on a salvage title car that provides more than basic liability coverage. This is because insurers don’t have any way to establish an accurate value for the car. They also can’t verify that the car has the same safety standards as a car with a clean title. For these reasons, it is almost impossible to get collision or comprehensive coverage on a salvage title car.
If you want to get auto insurance on a salvage title car, you should shop around to see who will insure you and offer the best rates. Some insurers may offer special policies for these cars. But you should generally be prepared to pay more for your insurance than you would for a car with a clean title.
A salvage title car comes with its own set of risks and limitations. Getting insurance for this type of car can be difficult and usually comes at a higher cost. There are several steps involved in getting and rebuilding the title of salvage vehicles. If you want to do this, you’ll need to keep detailed records showing all the repairs that have been done to the car. But if you know the car’s history and the person who is selling it to you, a salvage title car may be a good deal in some cases.