8.2.22

Can You Get an Auto Loan for a Vehicle with a Salvage Title?

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What you need to know about before buying a vehicle with a salvage title.

A vehicle that gets labeled “salvage” has had damage so extensive that it was deemed a total loss. It could have been from an accident, a fire, flooding, stolen parts, or heavy use—such as with a taxi or law enforcement vehicle. 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. 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 to finance a vehicle 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.

Other financing options

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.

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