You’re walking through the back of your local used car lot, looking for a new set of wheels, when you see it: a beautiful car with an even prettier price tag. The price seems almost too good to be true. When you ask the dealer about the vehicle, he extols its value and virtues—and mentions that the price is so low because the car is a salvage title vehicle.
What Is a Salvage Title?
A salvage title car is one that has been in an accident or damaged in some other way, where the damage is so significant that the insurance company has written it off as not worth the cost of repair. The car’s title is then “branded” as salvage, and in many cases the vehicle is sent off to auto heaven (also known as "the junkyard").
Sometimes, however, salvage title vehicles are put up for sale by car enthusiasts who buy them for the parts, or think they can fix them up for good. They might use them for cheap transportation or to resell once they have been repaired.
If you are considering purchasing a salvage title vehicle, tread carefully, as there are many issues to consider. One of the first is how to pay for it. If you don’t have the ready cash, and then we come to the question at hand: “Can I finance a salvage title car?”
It's unlikely that a bank will want to offer you a loan for a salvaged car. However, if it has been rebuilt, there is a chance for a loan.
Salvage title cars have not been repaired and are not considered road-worthy. However, these vehicles are sometimes restored and come out the other end in safe running condition. At this point, they become rebuilt-titled cars. There’s a vast difference between a salvage title car and a rebuilt one when it comes to financing. And the difference has everything to do with answering our question.
A Real Salvage Title Car
In the case of an honest-to-goodness salvage title vehicle, finding reasonable financing will be difficult, if not impossible. The truth is that most banks may look at a salvage title as coming with very high risk. And who can blame them? The vehicle was written off as a total loss by the insurance company for a reason.
If one responsible company with a financial stake in the vehicle has already decided it is not worth investing in, the chances are that another one will, too. When it comes to financing a salvaged car that has not been rebuilt, you may be out of luck with traditional lenders, though perhaps some of your relatives or friends may be willing to take a chance and lend you the needed funds.
The cost to get a salvaged car running and safe can be high. If your state requires inspections to certify that the car is rebuilt and safe, your expenses could continue to rise.
But before you purchase a salvaged car, you should carefully consider whether or not you’re willing to shoulder the responsibilities. You will need to substantially repair the vehicle before you’re allowed to take it on the road, and you might also need to subject it to an inspection before it can be reclassified as a “rebuilt” car.
A Salvage Car That Is Rebuilt
Finding a reasonable loan to buy a rebuilt vehicle is still going to be difficult. However, it may prove easier than finding financing for a car with a salvage title, which is nearly impossible to do. The key is proving to the lender that the vehicle has been thoroughly rehabilitated and is in excellent—and safe—running condition.
You can do this by hiring a competent, independent, certified mechanic to inspect the vehicle and write you a clean bill of health. Ask the owner first, though—they have probably already done this. It is likely the first thing they showed you when you came to look at the vehicle.
If the owner doesn’t have an inspection certificate, you may want to reconsider: it’s probably not worth the financial risk you’re taking.
If you absolutely must have that salvage title car and you are determined to find a lender, then go for it. Here are a few tips to help you with your search.
Where to Go for a Loan
When it comes to banking, nothing beats a good relationship—and a great credit score. Start by speaking with the lenders you have had an auto loan with if you have a good track record with them. It is beneficial if you can deal face-to-face with an agent you know personally.
If that doesn’t work, a quick search online should bring up several second- or third-tier lenders who claim to finance salvage title cars. Whoever you find to write a loan, however, be prepared to pay a potentially high-interest rate. A salvage title vehicle may be a risky investment for anyone.
What to Bring
In deciding whether to write a loan or not, lenders are going to assess their risk level. It is to your advantage to bring everything you have that will help convince them that you are a low-risk borrower. The two most important pieces of evidence in your favor are going to be a mechanic’s statement and your good credit rating. It wouldn’t hurt to show proof that you have a clean driving record as well.
You should probably also bring along a statement from your insurance carrier, indicating that they are willing to insure the vehicle (a rebuilt car, not a salvaged car before it has been repaired). If you have been able to convince an insurer to write you a policy on the vehicle, then you probably have a good chance that a lender will also be willing to write you a loan for it.
Frequently Asked Questions (FAQs)
How do you tell whether a title is clean or salvage?
There are a few ways to check the status of the title. First, you may be able to see a visible watermark that says "Salvaged" on the title itself. If your state doesn't use that method, you can check with its department of motor vehicles or use one of several online sites that can check the status using the vehicle identification number (VIN).
How much does a salvage title reduce a vehicle's value?
According to Kelley Blue Book, a salvage title will typically lower the value of a vehicle by 20% to 40%. Before you purchase a salvaged vehicle, though, you should have it appraised.
How does a salvage title affect insurance?
An insurance carrier will not insure a vehicle with a salvage title. In order to get the vehicle insured, you'll need to have the title reclassified to "rebuilt" or "restored" salvage status. The exact term and requirements vary by state, but the point is that the vehicle must be repaired and re-certified as road-ready in your state. Even once you've restored the title, your insurer will probably only offer a basic policy, such as liability insurance. Most will not offer comprehensive or collision insurance for a salvage vehicle.