A salvage car title is a title that refers to a car that has a poor history, making it cheaper as they need some work. Cars with salvage titles have usually sustained some sort of damage that has caused the insurance company to write the cars off as unusable.
From there, the cars can only be sold for lower rates because that is all they are worth. But before you rush to pay off your auto loan or buy a car with a salvage title, you might want to learn a little more about what a salvage car title entails.
What is a salvage title?
A salvage car title is a title given to cars that have sustained significant damage. This helps consumers make an informed decision before purchasing the vehicle.
Typically, a car that has a salvage title has been written off by an insurance company as a total loss due to the extent of the damage and the cost of the repairs. Damage can refer to anything from flood damage and collisions to stolen vehicles or missing parts.
The rules regarding salvage titles vary by state. In Michigan, for example, a title earns salvage status if the total estimated cost of damages is between 75% to 91% of the car’s pre-damaged cash value. At that point, the owner must apply for a resale salvage title within five days.
How do salvage titles work?
So, now that we know what a salvage title is, let’s explore how it works. If your vehicle has recently suffered extensive damage, then you are probably wondering, “What are the next steps?” Well, many of the details will depend on where you live.
Generally speaking, your insurance company will assess the vehicle to determine the impacts and effects of the damages. Once an insurance company determines that the damages are too much or the costs of repairs are too high, the insurance company will declare the car a total loss and repossess the vehicle.
At that point, the vehicle is often sold to an auto company in order to get back some of the money that was lost from the buyout. The auto resale company will likely sell the vehicle for parts or repair the vehicle altogether.
If the company decides to repair the vehicle, the car title must mention that the car has been salvaged, which is also referred to as rebuilt in some states. However, these terms are not interchangeable, and we will discuss how these terms differ later on.
Things to consider when buying salvage title car
Purchasing a damaged vehicle can be a unique experience. There are still some other factors you’ll want to consider prior to buying a salvage title car.
You have to get a loan for a salvage title vehicle. This can be tricky because the car might have very little value as is.
Loan companies might be hesitant to offer a loan for a vehicle with no Kelley Blue Book value. If you are able to get a loan, there could be additional requirements set forth by the lender due to the nature of the risks associated with the vehicle.
If you have repaired the vehicle, then you’ll have some understanding of the work involved in the repairs. If you purchased the vehicle after it was repaired, then there are a lot of unknown aspects of the repairs, which can make your knowledge of the car’s history a bit unreliable.
Though repairs are required to be documented, it is still hard to know the true extent of the damage that the car originally suffered. This can be challenging when it comes to dealing with insurance policies.
It is possible that your insurance company will not be able to offer full coverage because they won’t have an adequately detailed history of the vehicle. This does not mean you cannot get coverage, but it does limit your options.
Buying a salvage title vehicle means there will likely be major repairs needed. The price of the vehicle might be a steal, but consider all of the costs associated with the repairs. You might just end up paying more to repair the vehicle than you would have spent on a new or gently used car.
If you aren’t interested in putting extra work into a vehicle, you might want to consider other purchase options. For example, consider asking someone who is familiar with cars to look at the vehicle before you purchase it. Their expertise could provide you with some helpful insight into the expenses you can likely expect from a car with a salvage title.
Pros of a salvage title
The biggest advantage of buying a car with a salvage title is that it will cost very little. These vehicles are typically cheaper than cars with clean titles, making them a great option for someone looking for a budget-friendly car that they do not mind putting a little sweat equity into.
Another pro is that you might be able to use the car for parts. If you’re a car collector or you need to make repairs to another vehicle, a salvage title vehicle is a good option to consider. This is not work for a beginner though, so be sure you know what you are doing before making the decision to purchase a salvage title car for parts.
Cons of a salvage title
A con of a car with a salvage title is the time associated with repairing the vehicle. It might take a long time for you to bring the vehicle back up to standards and make it safe to drive. This is not ideal for people who are in need of a vehicle right away.
Keep in mind that certain states have an inspection process that vehicles must pass in order to be listed as having salvage titles. Be sure to look into the inspection process for your state ahead of time.
Another con is that the value of a salvage title vehicle tends to be less than the value of cars with more impressive title statuses. This could mean the car has very little trade-in value, meaning you might not make any money when you go to sell it and get a new vehicle. This disadvantage, in combination with the costs of repairs, could be costly both upfront and later on down the line.
Salvage title vs rebuilt title
You may hear the term salvage and rebuilt title used interchangeably, this can be confusing and misleading. There is actually a difference between a salvage title and a rebuilt title.
A rebuilt title is a vehicle that was once a salvage title vehicle but has since been repaired and is considered safe to drive. Once the salvaged vehicle passes the inspection, the title is then changed to a rebuilt title.
The salvage title is the vehicle that has been written off by insurance after experiencing considerable damage.
How does a car get a salvage or rebuilt title?
There are a few ways by which a car can earn a salvage title versus a rebuilt title.
Not all cars with a salvage title are damaged. It is estimated that 156 cars are stolen on a daily basis. Sometimes, a stolen vehicle will be stripped for parts, like its airbags or its electronics. If this is the case, then the fees associated with replacing those parts might not be worth it to an insurance company. At that point, the insurance company will just write off the vehicle and label it as salvaged.
Flooding is a common occurrence in certain states. Unfortunately, in turn, many car lots fall victim to flooding as well. This causes damage that makes cars unusable and unsafe to operate. An insurance company will then write off those cars, causing them to enter salvaged territory. Be mindful of a vehicle that has sustained flood damage as they are not easy to repair.
The most common reason a car receives a salvage title is when the car sustains physical damage as the result of an accident. If the expenses to repair the damaged vehicle are too high, the insurance company will write off the car as having salvage titles.
In some cases, and typically with older vehicles, the damage does not have to be severe. If the insurance company sees that the costs of the repairs outweigh the value of the vehicle itself, they will likely choose to write it off and award it a salvage title.
In order to receive a rebuilt title, the vehicle in question will have once held a salvage title. However, the purchaser would have then repaired the vehicle and passed an inspection.
Inspections vary from one state to the next, but the overall goal is to ensure they are drivable and safe to operate. This should give the driver peace of mind knowing that the vehicle was deemed safe to drive on the road.
Could be a lemon
Despite a rebuilt title vehicle passing inspections and being repaired, the possibility that the car is a lemon still exists. It is possible that the repairs were not performed properly.
It might be beneficial to have someone who is familiar with cars come along when you look at the vehicle. Look for aspects such as an airbag light that won’t turn on or doors that won’t close properly.
Also, keep an eye out for signs of flood or fire-related damage. Cars that have suffered flood or fire damage should not be repaired, but they might slip through the cracks and you could end up with one if you are not careful.
Should you buy a salvaged vehicle?
The short answer is that it depends. A car with a salvage title can come with a lot of pros as well as some cons, too.
Salvage title vehicles can be cheaper to purchase but they could also require a lot of money on your part when it comes to repairs. It’s up to you to decide if you can afford the expenses that come with a car that has a salvage title.
If you decide to go the salvage title route, there are ways to get quick cash to afford the repairs of the vehicle. With Instacash, you can receive a cash advance worth up to $250, all without any interest. This money can be put towards the repairs or any other car services that your salvage title car might need in order to be drivable.
MoneyLion is there for you no matter what. Whether you need help with your financial future or assistance with car-related purchases, MoneyLion has your back!
Will banks help finance a car loan with a salvage title?
Yes, banks can help you finance a loan for a car with a salvage title, but it might be challenging. Since a salvage title vehicle tends to be lower in price, consider a cash advance with Instacash.
Does a salvage title reduce a vehicle’s value? If so, how?
A salvage title can reduce a vehicle’s value by about 20% to 40% of its original value. This depreciation is a direct result of the damages the car has sustained.
How can you tell whether a title is clean or salvage?
Salvage titles and clean titles look very different. There will be some indication making it known that a vehicle has a salvage title, but always double-check the status of the title if you are unsure.