If you’re shopping for a used car, you may come across some with “salvage” titles. A salvage title is given to a car that has sustained enough damage (due to an accident or natural disaster like a flood) that it is considered a total loss by the insurance company. In other words, the vehicle can’t be repaired or the cost of repairs is close to or more than the value of the car. It is then “branded” as salvage.
Many of these cars go to the junkyard, but not all. Sometimes salvage title vehicles are put up for sale for parts or as a fix-it project. In other cases, they get repaired and, if they pass inspection, can go on the market with “rebuilt” titles.
Salvage and rebuilt title cars tend to come with much lower price tags than used cars with clean titles. You may even be able to get financing for a salvage car that’s been repaired. But before you take the plunge, here’s what you need to know about buying and getting a loan for a salvage vehicle.
Key Points
• Financing a vehicle with a salvage title is risky, making it difficult for lenders.
• Insurance options for salvage title vehicles are limited, usually only liability coverage.
• A salvage title can reduce a car’s value by up to 40%.
• Smaller banks, credit unions, and online lenders are more likely to finance rebuilt title vehicles.
• Securing financing can require good credit and thorough due diligence.
Buying Salvage Title Vehicles
The main advantage to buying a salvage title vehicle is that it will be significantly cheaper than buying another used car that has a clean title. However, if the title is still salvage and not rebuilt, it won’t be ready for driving any time soon, and repairs may be costly.
Buying a salvage car might make sense if you want to re-sell it for parts, need parts for another car you own, or you know how to repair cars yourself and are looking for a project. Keep in mind, however, that a salvage title can’t be driven on the road unless it’s fully repaired and passes inspection. At that point, it can be retitled as rebuilt.
Buying a car that already has a rebuilt title might make sense if you’re looking for a back-up car or a cheap car to “eat up” miles you don’t want to put on another car, or if it’s simply the only thing you can afford right now.
If you’re thinking about buying a salvage or rebuilt car, however, it’s a good idea to find out why the car was branded salvage in the first place. For example, if the car was completely flooded, it can run a higher chance of having mechanical and other issues in the future. In some states, these vehicles must be branded with a flood title.
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Selling Salvage Title Vehicles
While selling a vehicle with a salvage title can be challenging, you do have a few options. One is to sell the car to a junkyard (some junkyards will even pick up your car for you). Another option is to sell it privately, either to someone who wants to fix it or who needs parts from that particular car.
A third option is to dismantle your car and sell the parts individually or in groups. Called “parting your car,” this can take longer overall and requires more effort, but you may get more money for it than selling it whole.
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How Does Financing a Salvage Car Title Loan Work?
It can be difficult, if not impossible, to find an auto loan for a true salvage title vehicle. Banks and many other lenders will typically look at a salvage title as coming with very high risk, since there was a reason why the vehicle was written off as a total loss by the insurance company.
If the salvage title vehicle has been repaired, inspected, and given a rebuilt title, however, you may have a better chance at obtaining a loan, since the car has been deemed safe to drive at this point.
While large banks generally won’t provide financing for a rebuilt title car, you may have success with a smaller bank, credit union, or online lender. To improve your odds of getting approved for a car loan, it’s a good idea to obtain a mechanic’s statement that the car has been thoroughly rehabilitated and is in excellent — and safe — running condition. You may also need to bring a statement from your insurance carrier, indicating that they are willing to insure the vehicle — which is akin to giving the car a stamp of approval.
Last, but not least, it helps if you have good credit, since this further limits risk for the lender.
Because there are still risks involved in financing a salvage or rebuilt title car, rates can be higher than financing for a car with a clean title.
How Does a Salvage Car Title Impact the Value of a Car?
A salvage title significantly knocks down the value of a vehicle. Though every car needs to be individually appraised, a salvaged or rebuilt title can deduct 20% to 40% off a car’s value, according to Kelley Blue Book.
One reason that salvage title vehicles may be so much cheaper is that they can be difficult to insure, even when they’re rebuilt. Insurance companies may not offer car insurance for rebuilt vehicles at all, and if they do, it will likely be limited. They may only offer liability coverage, which will cover damage done by you to another property or people, but won’t cover your vehicle or injuries to you or your passengers.
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Refinancing Salvage Title Vehicles
If you can find an auto loan for a salvage title car that has been rebuilt and deemed road-worthy, it may be possible to refinance the car loan in the future.
Why would you bother? Refinancing might make sense if your initial salvage or rebuilt car loan came with a high interest rate, the monthly payments have become unmanageable, and/or you’ve built your credit score, thereby qualifying you for a lower interest rate.
However, it may be just as difficult, if not more so, to find a lender willing to offer a refinance loan than it was to find financing for the salvage vehicle in the first place. In fact, if your vehicle has aged significantly, it may be more difficult as the car will be worth less.
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Requirements for Refinancing an Auto Loan
When comparing auto loan refinancing rates, it’s a good idea to look at lender refi requirements. These may include:
• How long you’ve had the loan: Some lenders want you to have paid at least six months into the loan and have at least six months left to go on it. This shows them that you have an established history of payments, but also gives them enough time to profit from the loan.
• How much money is left on the loan: Refinancing is essentially a new loan, and lenders may not want to offer small loan amounts since they won’t be able to make much interest from them.
• The car’s age and mileage: If you bought a rebuilt salvage car with significant mileage — or you’ve racked up a lot since you bought it — you may not be able to refinance it. Lenders often have caps of 100,000 to 150,000 miles. The age of the car can also be a factor. Many lenders won’t refinance a car that is more than 10 years old.
• Your credit score: As with any loan, your credit score will impact whether or not you are able to refinance your used car. If you built your credit score since your original auto loan, however, you might be able to score a lower interest rate on a refinance.
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The Takeaway
When it comes to buying, financing, or refinancing a salvage car, the key is to proceed with caution. Generally, there is less risk in buying a salvage title car that has been rebuilt and rebranded as a rebuilt title car. This means the car has passed inspection, is now considered safe for driving, and can be registered. You’re also much more likely to find a lender who will finance (or refinance) a rebuilt car than one that is still considered salvage.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
How can you finance a salvage title vehicle?
It’s generally difficult to find a lender who will finance a vehicle with a salvage title. If the salvage car has been repaired and now has a rebuilt title, you may be able to get financing through a smaller bank, a credit union, or an online lender. However, you’ll likely need to have good credit, and interest rates may be high.
Do banks allow you to refinance salvage title vehicles?
Large banks generally won’t finance or refinance a salvage title vehicle. You may have better luck with a smaller bank, credit union, or online lender. Generally, however, a lender will only consider financing a salvage car if it has been repaired, passed inspection, and now has a “rebuilt” title. Also, you may have to show evidence that the car has been inspected by an independent mechanic and has been deemed to be in good working order.
Do private lenders allow you to refinance salvage title vehicles?
A private lender might consider refinancing a loan on a salvage title vehicle if that car has been repaired, inspected, and is now rebranded as a “rebuilt” title vehicle.
Photo credit: iStock/Edwin Tan
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