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If you’re shopping for a used car, you may come across vehicles that have “rebuilt” titles, whether on a dealer’s lot or for private sale. A rebuilt title is assigned once a car that had a “salvage” title is repaired and is now considered to be driveable and saleable.Cars with rebuilt titles are often considerably cheaper than cars with clean titles. However, they also carry risks and, as a result, can be more difficult to finance than other types of used cars. Here’s what you need to know about getting a loan for a rebuilt title car.
What Are Rebuilt Car Titles?
Your car title is the legal document that proves you're the owner of the car. Brand-new cars start with what is known as a “clean” title. Later, if the car is in an accident or otherwise sustains damage (perhaps due to a flood, fire, or hurricane) that renders it undrivable, it may receive a salvage title. This means the car is no longer safe to drive and cannot be registered. However, a salvage title doesn’t necessarily signal the end of the line. In some cases, salvage title vehicles may be repaired and rebuilt. If the repaired vehicle passes inspection and is declared safe to drive, it can then receive a rebuilt title. You may purchase rebuilt title cars and register them in your name. You may see both salvage and rebuilt titles referred to as “branded” titles. A branded title indicates there's something unusual about the title.
Buying Cars With Rebuilt Titles
A major advantage to buying a rebuilt title vehicle is price. These cars can be 20% to 40% less expensive than a similar car with a clean title. However, you’ll need to weigh that savings with increased risk. The car’s troubled past can mean that it will need additional (and potentially costly) repairs in the future. Before buying a car with a rebuilt title, it can be 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 issues in the future. And, you may end up dealing with other issues, such as fried electrical wires or mold. In some states, these vehicles must be branded with a flood title.You can learn about a rebuilt title car’s history by visiting the National Motor Vehicle Title Information System website VehicleHistory.gov, as well as other vehicle information websites, like Carfax. It’s also a good idea to have a trusted mechanic and body specialist thoroughly inspect the car before making a purchase decision.
Selling Cars With Rebuilt Titles
If you’re thinking about selling a car with a rebuilt title, you’ll need to make sure it’s properly repaired and passes your state’s rebuilt title inspection. Once it passes, you can put it up for sale.Keep in mind, however, that a rebuilt title car is generally worth much less than its clean titled counterpart. It may be more difficult to sell the car, and potential buyers may attempt to use the rebuilt title to their advantage to negotiate a lower price. To get the most money out of a car with a rebuilt title, you’ll want to make sure that the vehicle is in the best shape possible – both under the hood and on the exterior. Touching up any cosmetic damage can also boost your chances for a sale.
Financing a Car Loan With a Rebuilt Car Title
If you’re looking to get a loan for a rebuilt title car, you may come up against some challenges. Why are most lenders against financing rebuilt car titles? The main reason is that lenders are in the business of managing risk. They may see a rebuilt title car as more likely to break down and lose value in the future. If a car doesn’t run and is costly to repair, the borrower may default on the loan. If that happens, the lender will need to repossess the vehicle and sell it to recoup their losses. If the car doesn’t run, they may be able to collect little money on a sale. 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 increase your chances of getting approved for a rebuilt title 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’ll also likely need to bring along a statement from your insurance carrier, indicating that they are willing to insure the vehicle. Finally, it helps if you have good credit, since this further mitigates risk for the lender.
Benefits of Financing Rebuilt Car Titles
The main advantage to financing any type of used (or new) vehicle is that it allows you to buy, and have access to, a car without having to pay the full price upfront. The way car loans work is that you get the purchase price of the car upfront, then pay that money back (plus interest) in monthly installments over time.When you are financing a rebuilt title car, you have the added advantage of a lower initial price tag, which means your loan size will be smaller.Financing a rebuilt title car can also be a good way to build credit, provided you use your loan responsibly and make all of your payments on time. A strong payment history can have a significant — and positive — impact on your credit score. Better credit, in turn, can give you access to financing (whether for a car or a mortgage) with attractive rates and terms in the future.
Risks of Financing Rebuilt Title Cars
There are also some downsides to financing a rebuilt title car. One of the biggest is that finding a lender that is willing to offer a loan for a rebuilt title car can take some leg work. Once you do find one, you can run into another thorny issue: high interest. Lenders generally charge higher rates for rebuilt title cars than they do for clean title cars simply due to the higher risk involved.Also, keep in mind that financing a rebuilt title car involves risk for you too. These cars generally have a higher chance of future problems and, as a result, can lose value quickly. If the car loses value faster than the loan is paid off, you could end up being “upside down” on the car loan, meaning the car is worth less than what is owed on it.
Pros of Financing Rebuilt Title Cars
Cons of Financing Rebuilt Title Cars
Lower initial price tag with rebuilt title
Difficult to find a lender who will finance a rebuilt title car
Can pay for the car over time
Interest rates may be high
Can help you build credit
Higher risk of becoming upside down on the loan compared to a clean title car
Refinancing a Car Loan With a Rebuilt Car Title
If you are able to secure financing for a rebuilt title car, refinancing might be an option for you down the road. When you refinance, you pay off your old loan with a new loan, ideally with a better interest rate and/or preferable terms. You might consider refinancing if your initial 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). That said, 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 it in the first place.
Requirements for Refinancing an Auto Loan
Requirements for refinancing an auto loan will vary by lender. Typically, however, each lender will have rules about:
Time left on the loan Lenders will often 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 that you have an established history of payments, while giving them enough time to profit off interest.
Amount of money left on the loan Refinancing is essentially taking out a new auto loan. Typically, lenders don’t want to offer small amounts, since they won’t be able to make as much money from them.
Mileage and model year If you bought a rebuilt title 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. Model year can also be a factor. Generally, lenders won’t refinance a car that is more than 10 years old.
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 measurably improved since your original auto loan, however, you might be able to score a lower interest rate on a refinance.
Buying a rebuilt title car involves a certain amount of risk. Depending on the car’s history, it may be more likely than other used cars to experience mechanical issues down the road. If you’re able to find a rebuilt title car you like and it passes inspection from an independent mechanic, however, it could end up being a great deal. In addition, you may be able to find a lender willing to finance (or refinance) the car.
3 Auto Loan Refi Tips
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.
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.
What are your loan options for cars with a rebuilt title?
Can you refinance a car loan for a rebuilt car title?
Photo credit: iStock/razerbird
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About the Author
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.
