Buying a car with a salvage title can be tempting under certain circumstances, but it can come with a lot of potential complications. Here’s what you need to know about before trying to buy a vehicle with a salvage title.

What is a salvage title?

A “salvage title” is any title given to a vehicle with damage so extensive that it was deemed a total loss.

How Does a Vehicle Get a Salvage Title?

Salvage titles are given when an insurance company declares a vehicle to be a total loss, due to damage or overuse. Common sources of salvage titles include:

• Accidents
• Fires
• Flooding
• Stolen parts
• Heavy use (ie retired taxis or law enforcement vehicles)

Every vehicle with a salvage title has its own unique story, and knowing the cause of these titles can help you better understand the condition the vehicle may currently be in.

Why would I consider buying a car with a salvage title?

Some people buy salvage vehicles simply for parts. Others buy one as an affordable car they plan to drive many miles to avoid wear and tear on a nicer car. And some folks enjoy the challenge of a fixer-upper.

Whatever the reason, buying a salvage vehicle can be tricky to insure and finance. If you’re considering the purchase of a vehicle with a salvage title, here’s what you need to know.

What to know before you buy a salvage car

The low cost of a salvage title vehicle needs to be weighed against other costs and limitations.

If you finance a salvage title vehicle, borrowing costs will be higher because the car has low value to begin with and doesn’t provide much in the way of collateral if the borrower doesn’t pay back the loan.

It will be difficult to insure the car and insurers won’t offer comprehensive coverage. Coverage offered may be minimal.

A salvage car provides no warranty coverage from the vehicle’s maker. Any warranty coverage needs to be purchased from a third-party, which can be pricey.

When you resell the car, it won’t be worth as much as an identical model with a clean title.

How do I get an auto loan for a car with a salvage title?

Financing a car with a salvage title is tougher than it is for a car with a clean title. Any lender will be reluctant to take on the risk of financing a car that’s been written off as a total loss by an insurance company. If you seek financing for a salvage title vehicle, you need to know what a potential lender will want to see.

One thing a lender will look at is your credit score. They’ll look at your debt-to-income ratio too. They will use this information to determine if you are a low-risk borrower—someone who is likely to repay the loan.

Lenders who consider a salvage title will also want to see a mechanic’s statement about the condition of the car’s body and its systems, and that it’s road-worthy.

Not all insurers will cover a salvage title car. You’ll want to show your lender a statement from an insurer that says they’ll provide coverage.

If you find a salvage title vehicle to buy, credit unions are more likely than big banks to lend on salvage title vehicles.

What’s the difference between salvage titles and rebuilt titles?

If you’re looking for a car that’s not in perfect condition, you might come across vehicles with rebuilt titles. It’s important to understand the distinction between a car with a rebuilt title and one with a salvage title:

• Cars with rebuilt titles were once declared a loss, but have been repaired enough to bring them back to driveable condition.
• Cars with salvage titles are considered a loss in their current condition. Many vehicles with rebuilt titles began as vehicles with salvage titles until the necessary repairs were completed.
• To get a rebuilt title, the vehicle needs to be inspected by certified professionals to verify that it is roadworthy.

If you are interested in a vehicle with a rebuilt title, financing and insuring one may involve similar challenges to cars with salvage titles.

How else can I finance a car with a salvage title?

An auto loan is not your only option for financing a salvage title vehicle; you could also use a personal loan or a home equity loan.

 

All loans subject to approval. Rates, terms and conditions are subject to change and may vary based on credit worthiness, qualifications and collateral conditions. Federally insured by NCUA.