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New cars receive what’s known as a clean title, which tells buyers that the vehicle is in good working order, safe to drive, and road-ready. A car keeps its clean title until it’s compromised in some way, such as if it’s involved in an accident or a disaster like a fire or flood. If it is, the car may get a “branded” title. Two common branded titles you may encounter if you’re in the market for a used car are salvage titles and rebuilt titles.There are crucial differences between these titles. If you’re comparing a salvage title vs. a rebuilt title, it’s important to understand the risks you’re potentially taking on with both types of branded titles.
What Are Rebuilt Car Titles?
Once a salvage title vehicle is repaired, it can get inspected. If it’s declared safe to drive, it can be assigned a rebuilt title. The rebuilt title means the car is road ready and eligible for registration in the owner's name.
How Do Rebuilt Car Titles Work?
A rebuilt title will remain with a vehicle for the rest of its days on the road. This helps potential buyers understand that, at one point, the car was damaged and required significant repairs. In turn, this helps buyers understand what types of risks they may be taking on. Rebuilt title cars may have undetected damage that will require repair in the future. For example, an issue that a previous accident caused may be hidden or may not get noticed, even if it’s inspected by a qualified mechanic. Recommended: Getting a Car Loan for Rebuilt Car Titles
What Are Salvage Car Titles?
A salvage title is given to a car that’s damaged to the point that the cost of repair is near, or exceeds, the value of the vehicle. If this is the case, the car insurance company will declare the car a total loss, pay out the claim, and take ownership of the car.The insurance company may then try to sell the car to recoup some of their losses. The car receives a salvage title to let potential future owners know that it has sustained significant damage.
How Do Salvage Car Titles Work?
A salvage title means that the car is no longer safe to drive on the road. Rules for salvage titles will vary by state, and it’s worth checking with your state’s department of motor vehicles (DMV) to understand your local laws.Generally speaking, sellers must disclose salvage titles to potential buyers, but that’s not always the case. Find out what your state’s requirements are, and always research used cars before you buy them. You can request information from the DMV, or look on car history websites, such as Carfax.Cars with salvage titles are often junked or used for parts. But, in some cases, you can repair them. Cars with salvage titles can be quite a bit cheaper than a car with a clean title — to the tune of 20% to 40% lower in market value. Repair shops may buy vehicles with salvage titles from insurance companies and bring the car back to good working order to resell it. Individuals looking for a car they can work on themselves might consider buying one as well.In some cases, the damage done to salvage title vehicles may be largely cosmetic. This could mean they need just a few repairs to make them safe to drive again.
Differences Between a Rebuilt and Salvage Title
Salvage titles cannot be registered and are not considered safe to drive on the road. In some cases, they are not fixable and may be junked or scrapped for parts. Others may be repaired and given a rebuilt title.Vehicles with rebuilt titles, on the other hand, have passed an inspection that declares them safe to drive. Additionally, they may be registered in their owner’s name.Another important difference between rebuilt vs. salvage titles: Vehicles with salvage titles are uninsurable, whereas you can likely get insurance for your vehicle with a rebuilt title. That said, you may not be able to get full coverage. Your insurance company may only offer you liability insurance, which will cover damage to other property and persons, but not to your vehicle.
Similarities Between a Rebuilt and Salvage Title
Rebuilt and salvage titles share some similarities. For one, when you buy a car with a salvage or rebuilt title, you’re taking on more risk than if you were to buy a car with a clean title. In the case of either a rebuilt or salvage title, you’ll want to look carefully into the vehicle’s history before buying it. Look for sellers who are transparent about the car’s past and have knowledge of the damage the car sustained and the repairs it received. Consider a professional inspection before agreeing to buy the vehicle. Also, it’s important to understand that it may be more difficult to resell the vehicle down the line. Future buyers may hesitate due to the branded title, or they may use it to their advantage to negotiate a lower price. Another overlap between rebuilt or salvage titles is that finding an auto loan can be a challenge, and branded titles may not meet a lender’s qualifications for car loans. In general, lenders are risk averse, and they may worry that borrowers will be more likely to default on a loan for a rebuilt vehicle. What’s more, if a borrower does default and the lender must repossess the vehicle, they may have a hard time selling it to recoup their losses.That said, it’s still worth checking with banks, credit unions, and private lenders to see what loans they might offer. Note that lenders that offer financing for branded vehicles often have additional requirements or charge higher interest rates, so understanding auto loans and how they stack up is important.With all that in mind, here’s a review of the major differences and similarities between salvage vs rebuilt titles to note:
Differences Between Rebuilt vs. Salvage Titles
Similarities Between Rebuilt vs. Salvage Titles
Salvage titles are not roadworthy and can’t be registered, whereas rebuilt titles have passed an inspection declaring them safe to drive and can be registered in their owner’s name.
When buying a salvage or rebuilt title, there’s the risk the car will have future issues that require costly repairs.
Salvage titles are uninsurable. And while it’s usually difficult to find comprehensive insurance for a rebuilt title, it may be possible to find liability insurance.
Both vehicles with salvage and rebuilt titles may be more difficult to resell than a car with a clean title.
It may be difficult to find financing for a branded title.
Refinancing Rebuilt vs. Salvage Titles
If you find financing for a branded vehicle, it may be possible to refinance your loan in the future. When you refinance, you pay off your old loan with a new loan, preferably one with a lower rate or better terms. You might consider doing so if your monthly payments become unmanageable, if interest rates drop, or if your personal finances improve. The interest rate you’re offered will largely depend on your credit score. If your credit score has recently gone up, you may find that you can secure a refinance loan with a better rate than your old loan.
The Takeaway
If you’re in the market for a used vehicle and are considering a car with a branded title, it’s important to understand the differences between vehicles with a salvage title vs. rebuilt title. You may only want to buy a salvage car if you’re prepared to fix it yourself, whereas a rebuilt title car is ready to drive upon purchase. In either case, it may be tricky to find financing for a branded title vehicle, though some banks, credit unions, or private lenders may offer them. If you’re looking to refinance your loan in the future, make sure to shop around to compare multiple lenders. Lantern by SoFi can help you compare lenders to ensure you’re getting the most competitive rate for refinancing a car loan and the best terms.Compare auto loan refinancing rates with Lantern.
Frequently Asked Questions
What is the downside to a salvage title?
Is a rebuilt car safe to buy?
Can you refinance rebuilt and salvage titles?
Photo credit: iStock/adamkaz
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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.
