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Financing a Salvage Title Vehicle

Can You Finance a Salvage Title?
Austin Kilham
Austin KilhamUpdated November 21, 2022
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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.  

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 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.You can learn about a salvage or rebuilt title car’s history by visiting the National Motor Vehicle Title Information System website, as well as other vehicle information websites, like Carfax. If you’re thinking of buying a rebuilt title car, it’s also a good idea to have a trusted mechanic and body specialist thoroughly inspect the car before you close the deal. 

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 for it than selling it whole.

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. However, finding a lender to finance the car could still take some leg work.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 up your odds of getting approved for a car loan, it’s a good idea to obtain, and present, 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 apprised, 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 insurance for rebuilt cars 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.

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 that 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 your credit score has improved (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. Recommended: Pros and Cons of Refinancing a Car 

Requirements for Refinancing an Auto Loan

Refinancing an auto loan is essentially just replacing your current car loan with a new one, so the requirements are similar. However, there are some requirements that are specific to refinancing, which can vary from one lender to another. When comparing auto loan refinancing rates, it’s also 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 don’t 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 a lot of 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 your credit has improved since your original auto loan, however, you might be able to score a lower interest rate on a refinance.

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. 

3 Auto Loan Refi Tips

  1. Refinancing your auto loan could lead to lower monthly car payments and more money in your budget. Lantern by SoFi can help you find the right auto refi loan for you.
  2. Shortening the term of your auto loan may increase your monthly payments, but you’ll likely pay less in interest over the life of the loan.
  3. You may have trouble refinancing the loan on a car that is worth less than what you owe. For more info, check out When Is the Right Time to Refinance a Car?

Frequently Asked Questions

How can you finance a salvage title vehicle?
Do banks allow you to refinance salvage title vehicles?
Do private lenders allow you to refinance salvage title vehicles?
Photo credit: iStock/JohnnyGreig

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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