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A car’s title is a certificate that shows proof of ownership and includes identifying information about the vehicle, such as its make, model, and vehicle identification number (VIN). A salvage title is a special type of car title that is given to a vehicle that has sustained significant damage in an accident, flood, or other unfortunate circumstance. Typically, the damage is so extensive that the car is deemed unsafe to drive on public roads.How do you know if a car has a salvage title? Should you buy a car that has a salvage title? Read on to learn more about how a salvage title works, how it affects the value of a car, and whether you can get financing for a salvage title car.
What Does Salvage Title Mean?
If the car has a salvage title, it means that it has been subjected to enough damage in the past that an insurance company has declared it as a total loss. The previous owner may have been in a serious accident, or the car may have been damaged as a result of theft, fire, vandalism, hail, or a flood. Depending on your state's laws, a car is considered a total loss when the repairs would cost 50% to 90% of its pre-damaged fair market value. Salvage titles exist so that consumers who purchase vehicles are aware of that car’s history and any potential problems that could result from it.
How Salvage Titles Work
If your car has been severely damaged due to a collision or other incident, your insurance company may decide it isn't worth repairing and declare it a total loss. At that point, either you or your insurer will need to get a salvage title for the car. Which party does this will depend on who plans to retain possession of the vehicle.You apply for a salvage title through your state’s department of motor vehicles (DMV). While the process varies depending on the state, it generally involves filling out an application, paying any required fees, and submitting the car to a salvage vehicle examination to assess the extent of the damages and the vehicle's overall condition.If you have a salvage title car, you may be able to sell it for parts. If you want to drive it again, however, you’ll need to repair it and make it safe again. If you opt to go the repair route, it’s a good idea to document the repairs so you can provide proof of the work when you apply for a rebuilt title. To get a rebuilt title, you’ll need to apply at the DMV and get the car inspected. If it passes inspection, you are granted a rebuilt title. And of course, repairing it will likely improve the value of your car.
Are Cars With Salvage Titles Damaged?
Yes. Cars with salvage titles have generally sustained enough damage that an insurance company has decided the repair costs would be close to or exceed the car’s value and, therefore, would not make economical sense.However, if the vehicle has a relatively low market value, even minor damage could result in the insurer calling it a total loss. For example, a car that has a fair market value of $3,000 may have sustained only moderate damage (or just cosmetic damage) for the repair cost to exceed the car’s value.
Pros of Salvage Title Cars
There are actually some advantages to purchasing a vehicle with a salvage title. Here are some to consider.
A low price tag. These cars will typically sell for prices far below similar cars with clean titles, which is part of understanding the value of a car with salvage title.
The damage may not be that bad. You could get lucky and find a car with a salvage title that has minimal damage or just cosmetic damage. Or, you might find an older car that was considered a loss by the insurer simply because it had a low market value, not because the repairs were all that costly.
It may be worth buying for parts. With the high cost of auto parts, it might be worth buying a car with a salvage title to get parts for another car you own and/or parts to sell.
Cons of Salvage Title Cars
Despite some advantages of purchasing a vehicle with a salvage title, there are some definite drawbacks. Here are some to keep in mind.
It may be more damaged than it looks. Some damage may not be immediately apparent. The seller must disclose that the vehicle has a salvage title, but it’s up to the buyer to determine the exact extent of the damage. If you're thinking about buying a salvage or rebuilt title vehicle, it can be a good idea to have it checked out by a mechanic you trust to help spot any potential issues before getting the title signed over to you.
Repairs could be costly. There’s a reason why the car got a salvage title. It needs repairs, and these repairs could cost a lot of money when you factor in parts and labor. Also, if the car has a salvage title, it’s no longer legal to drive on the road. To regain legal status, the car must pass an inspection approved by the state once it’s repaired.
It may be difficult to get insurance. Not every insurance company will insure a car with a salvage or rebuilt title. If you find one that will, they may offer a liability-only plan that won’t cover the damage to your car if you get in a collision.
Determining if Your Car Has a Salvage Title
The easiest way to tell if a car has a salvage title is to look at the title itself – it will typically be clearly marked as salvage. It may even state that the car went through a flood, if that was the case. If you don’t have access to the car’s title, there are other ways to investigate a car’s history. One is to request a history report from CarFax or another independent reporting site using the car’s VIN. You can find a car's VIN stamped on the dashboard near the windshield, on the driver's side of the vehicle; on a plate or sticker on the driver's side door jamb; or stamped on the engine's firewall.You can also enter the car’s VIN into the National Motor Vehicle Title Information System to get more background information on the car.
Can You Refinance Salvage Title Cars?
It might be possible to finance or refinance a salvage title car, but it won’t be easy. Auto loans typically use the vehicle as collateral for the loan. This means the lender can repossess the car and sell it if you stop making payments. A salvage title car doesn't have a high value, making this type of financing riskier for a lender. There are a few specialty lenders that offer these loans, but you will likely have to make a large down payment and pay a high interest rate. By fixing the car and getting a rebuilt title, it will likely be easier to refinance. Recommended: Tips for Car Refinancing
The Takeaway
A salvage title means that the car has extensive damage and is no longer roadworthy. However, if it gets repaired and passes a state inspection, it may qualify for a rebuilt title. While there are risks involved in purchasing a salvage title vehicle, there is also a chance that you could profitably rebuild and resell a salvage title car, or make money by selling off the car’s parts. Just keep in mind that finding a loan to finance or refinance a salvage title car may be difficult.
3 Auto Loan Refinance 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 car 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.
Does having a salvage title reduce the value of your car?
Do car loans for cars with salvage titles qualify for refinancing?
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About the Author
Jason Steele
Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
