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If you're looking to buy a used car, you're likely to come across listings for cars with salvage titles. These cars have previously been declared a total loss and are often priced at just a fraction of the cost of comparable models with clean titles. Buying a car with a salvage title could save you money, but it's a risky endeavor and may not be a good option for most drivers. Here's what you need to know about buying a salvage title car.
What Is a Salvage Title?
A salvage title specifies that a vehicle has sustained significant enough damage that repair costs exceed its fair market value and is considered a total loss by the auto insurer.
Generally, auto insurance companies consider a car "totaled" when the cost of repairs and salvage value meets or exceeds the car's actual cash value. However, some states set total loss thresholds, and insurers must declare a vehicle a total loss when repair costs exceed a specified percentage of the car's value, typically between 60% and 100%.
A car can receive a salvage title for a number of reasons, including an accident, fire, theft or flood. It's illegal to drive a salvage title vehicle on the street until it passes a safety inspection and receives a rebuilt salvage title designation. Some states may also call it a rebuilt, restored, reconstructed or previously salvaged title. It's likely any salvage car listing you see is actually a rebuilt salvage title, but double-check to be sure.
Pros of Buying a Salvage Title Car
Buying a salvage vehicle is a risky proposition, but these advantages might make it worth considering.
Lower Price
The biggest advantage of buying a car with a salvage title is the significantly lower price—usually about 50% less than what you'd expect to pay for a similar car with a clean title, according to Edmunds. In some cases, you may find even greater savings. Depending on the car's condition, you may be able to purchase and repair it for less than what an identical car with a clean title.
May Be Repairable
In some cases, a salvage car may be in decent condition but have body damage or other minor issues that you or a mechanic can repair. For example, repairing a few dents, replacing a radiator or fixing suspension problems may be worth it to restore a car to working order if it saves money in the long run.
Spare Parts
If you're a car enthusiast or a mechanic, salvage vehicles can be a goldmine for spare parts. These parts can be particularly valuable for older or more rare cars with hard-to-find components. And, even if the car isn't ready for the road, you may be able to "part out" the vehicle—selling its parts for a profit.
Cons of Buying a Salvage Title Car
While you might save some money, the risks may not make it worth buying a car with a salvage title.
Safety Risks
Perhaps the biggest risk of buying a car with a salvage title is safety. These vehicles have often sustained severe structural damage in an accident, the extent of which you may never know. The repair shop may have taken shortcuts or used cheaper parts to fix the vehicle. Also, some damage may not be immediately known. For example, a car totaled by a flood may have hidden electrical or mechanical issues, as moisture could corrode these systems over time. These issues might not show up until months or even years later.
Legal Issues
You won't be able to register a salvage title vehicle until your state's motor vehicles department provides you with a rebuilt title. This requirement exists to keep unsafe vehicles off the road, so you won't be able to legally drive it anywhere until the car can pass the inspection for a rebuilt title.
Difficulty Financing
Since it's hard to determine the true value of a salvage vehicle, you may have a difficult time getting a loan for a salvage vehicle. Even vehicles with a rebuilt title could face similar challenges, so you might try to line up financing before making an offer.
Hard to Resell
If you plan on reselling the car, a salvage title car may not make financial sense. Remember, even if you repair the car to perfect working condition, its title will always show that it was once a salvaged or rebuilt vehicle. As such, you won't receive top dollar for it, and dealerships may refuse to accept it as a trade-in.
Can You Insure a Salvage Title Car?
Insurance companies won't insure a salvage title car. You may qualify for coverage after the vehicle has been sufficiently repaired and issued a rebuilt title, but it could be limited. For example, your insurance company may only offer your state's minimum required coverage, such as uninsured motorist coverage and personal injury protection. Full coverage insurance could be harder to come by. Some insurers may deny this coverage on rebuilt title vehicles because it's difficult to distinguish between pre-existing damage and new issues.
Buying a Salvage Title Car
Because of the risks involved, you must take steps to help protect yourself against surprise costs, safety issues and even fraud. Follow these steps:
- Understand your state's rules. Knowing your state's salvage title threshold could help you better understand a car's condition and whether it presents a good value. Remember, some states issue salvage titles for vehicles with damage as low as 60% of their value. Others use the total loss formula, which means repair costs and salvage value must meet or exceed the car's actual cash value. So, for example, if your state's salvage threshold is 75%, a used car normally worth $10,000 may be available for $7,500. This could present an opportunity to save money, depending on the cost of repairs and other expenses.
- Get an inspection. Before you make an offer, have a mechanic you trust thoroughly inspect the vehicle for hidden problems or damage. A reputable mechanic can assess the car's structural integrity and inspect its various systems to provide a detailed report on its condition. The inspection will cost money, but it's a small price to pay to potentially avoid more costly surprises.
- Check the vehicle's history. On top of the vehicle inspection, you'll need a detailed vehicle history report to learn about the car's past. To discover this information, get a vehicle history report from providers like AutoCheck by Experian or the National Motor Vehicle Title Information System (NMVTIS). Then, ask the seller for maintenance records and repair invoices from any shops that worked on the vehicle to see what was repaired and replaced. Arming yourself with as much information as you can about the car's past can help you make a more informed purchase decision.
- Beware of fraud. Sadly, not all sellers are honest. The seller may downplay damages as minor. Don't take their word for it; refer to your inspection and vehicle history reports instead. Also be on the lookout for title washing, a car-buying scam where sellers move a car to a state with more lenient title standards or apply for a new title without disclosing the vehicle's history. Along with your history and inspection reports, you might consider contacting your auto insurer—some may provide extra details about the car's history.
Can You Get a Loan for a Salvage Title Car?
You may find a reliable salvage car at a great price you want to buy, but you could hit a roadblock if you plan on financing the purchase. For starters, many lenders don't offer loans on salvage title cars because they consider them too risky. If you find a lender willing to work with you, you may have to pay a higher interest rate or put down a larger down payment.
You might consider taking out a personal loan to buy the car, but these loans often have higher interest rates than car loans since they're unsecured and don't use your vehicle as collateral. Another option is to tap into your home's equity with a home equity loan or HELOC. However, these options are secured by your home, meaning your lender could foreclose on the home if you fall behind on the payments. You may not want to risk such a valuable asset on a car that could need expensive repairs or potentially break down completely.
Learn more >> How to Get a Car Loan
The Bottom Line
You may be able to save a substantial sum by purchasing a salvage title car, but you must take precautions to mitigate the serious risks they pose. It's essential to perform your due diligence, look into the vehicle's history and rely on the advice of your mechanic, insurance agent or other professionals.
Whether you're considering a car with a salvage or clean title, you can search its history with Experian using the vehicle identification number (VIN) or license plate number. You can dive into the car's past to discover if it's been in an accident, damaged by flooding or even reported as stolen.