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Can You Finance a Salvage Title Car

Can You Finance a Salvage Title Car

If you’re shopping for an affordable used car, you may come across some great deals on vehicles with salvage titles.

But can you finance a salvage title car?

The short answer is yes, you can get financing for a car with a salvage title – but it’s not quite as simple as financing a car with a clean title.

Most lenders consider salvage title vehicles a higher risk, so you’ll have to do some extra legwork to secure an auto loan.

Relevant Article to Read: Does a stolen car get a salvage title?

In this comprehensive guide, we’ll explain everything you need to know about salvage title cars, including:

Key Takeaways: Financing and Buying Cars With Salvage Titles

  • It is possible but challenging to get approved for an auto loan to finance a salvage title vehicle. Cast a wide net among lenders.
  • Interest rates are higher than normal due to the increased risk. But personal loans provide flexible options too.
  • Salvage titles lower a car’s value 20-40%. Most insurers won’t offer comprehensive coverage once repaired.
  • Carefully research the car’s history and have it inspected before finalizing a purchase.
  • Be prepared for potential safety risks, mechanical issues, and very low resale value if you buy a salvage car.

Understanding Salvage Titles

A salvage title is a designation given to a vehicle when it has experienced extensive damage and is deemed a “total loss” by an insurance company.

You might also be interested in reading: Rebuilt vs. Salvage title (What’s the difference).

There are a few main reasons a car can be given a salvage title:

  • A severe accident – If repair costs exceed ~75% of the car’s pre-accident value, insurance companies will total it.
  • Natural disaster damage – Floods, hail storms, wildfires etc. can lead to salvage titles if repairs are cost prohibitive.
  • Theft and vandalism – If parts are stolen or extensive vandalism occurs.

Once totaled, the insurance company pays out a claim to the owner. The insurer then takes possession of the vehicle and typically sells it at salvage auctions to buyers looking for cheap cars to fix up or use for parts.

So that’s how severely damaged cars end up back on the market with branded salvage titles. Let’s look at the key pros and cons of buying one.

Does a Salvage Title Car Void Recalls?

Getting an Auto Loan to Finance a Salvage Title Car

Now to the big question – how do you actually get financing to buy a salvage title vehicle? It’s certainly possible, but does require a bit more effort.

Key Financing Options for Salvage Title Cars

There are a few ways you can finance the purchase of a vehicle with a salvage title brand:

Financing OptionDescriptionProsCons
Traditional Auto LoansLoans offered by banks and credit unions for vehicle purchaseLow-interest rates for good credit scoresNot typically available for salvage titles
Specialized Auto LendersLenders focusing on high-risk loansWilling to finance salvage titlesHigher interest rates
Personal LoansUnsecured loans without collateralFlexibility in use, no dependency on car’s valueHigher interest rates, depends on creditworthiness
Home Equity LoansLoans secured against the borrower’s home equityPotentially lower interest ratesPuts home at risk, not tied to car’s valu
  • Traditional auto loans – A regular car loan from a bank or lender. Hard to get approved but not impossible.
  • Personal loans – Not just for cars but can be used for anything. Provide more flexibility.
  • Individual sellers – Some sellers offer their own financing. Higher rates but an option.
  • Home equity loans – Leverage home equity. Only if you have sufficient equity available.

As you can see, traditional auto loans are still an option, but personal loans provide more leeway if you get denied by regular lenders. Let’s look more closely at getting a traditional car loan.

Pros and Cons of Purchasing a Car With a Salvage Title

Pros and Cons of Purchasing a Car With a Salvage Title
Pros and Cons of Purchasing a Car With a Salvage Title

Pros:

  • Much cheaper than similar clean title cars
  • May find rare, discontinued, or special models
  • Opportunity to save a car from the junkyard
  • Great for parts if you like fixing up vehicles

Cons:

  • Safety risks if critical damage not repaired properly
  • May have hidden issues that only emerge later
  • Often can’t be insured once repaired
  • Resale value remains very low

As you can see, the ultra-low prices are alluring, but there are considerable risks involved too. Keep these pros and cons in mind as we explore financing options.

Tips for Getting Approved for an Auto Loan on a Salvage Title

Lenders consider salvage title cars high risk, so getting approved for an auto loan takes some finesse. Follow these tips to improve your odds:

  • Ask your bank first – Leverage existing relationships with a lender if possible.
  • Shop around extensively – Cast a wide net, look beyond major banks.
  • Highlight repairs/inspection – Provide mechanic reports showing the car is road-worthy.
  • Check insurer coverage – Ask for proof they’ll insure it before applying.
  • Improve credit score – The higher your score, the better.
  • Make a large down payment – At least 20-30% down can make approval more likely.
  • Add a co-signer – If you have poor credit, a co-signer with better credit can help.

With persistence and the right lender, an auto loan for a salvage vehicle is possible in many cases. But expect higher than average interest rates due to the increased risk.

How a Branded Title Impacts Car Insurance and Value

Two other important considerations if you’re thinking of buying a salvage title car are insurability and how much it hurts value.

Unfortunately, most major insurance companies are hesitant to provide coverage for salvage title cars. Even once repaired, insurers view them as riskier. Some smaller insurers may offer basic coverage, but rates will likely be higher.

As for value, a salvage title car can lose 20-40% of its worth compared to the same car with a clean title, according to Kelley Blue Book. And their resale value remains low too.

So purchasing a salvage vehicle involves some trade-offs. But if you get the right deal and don’t mind the drawbacks, it can be an affordable way to buy a car. Let’s look at the process.

Steps for Purchasing a Vehicle With a Salvage Title

If you decide to buy a salvage title car, follow these key steps to make it go smoothly:

1. Research the car’s history – Order a Vehicle Identification Number (VIN) Check and get a full vehicle history report with maintenance records (If available). Learn why it has a salvage title.

2. Have it inspected by a mechanic – Get a Salvage Title Car Inspection and ensure it’s structurally sound and safe to drive.

3. Determine your budget – Factor in potential future repair costs.

4. Explore financing – Apply for loans and compare all options.

5. Negotiate a fair price – Use Kelley Blue Book or another guide adjusted for the branded title.

6. Review paperwork carefully – Check title documents and confirm no liens.

7. Transfer registration/title – Meet requirements to register the car locally.

Take the time to make sure you know what you’re getting into before finalizing a salvage title purchase. An informed buyer avoids nasty surprises down the road.

State-by-State Salvage Title Laws and Regulations

Salvage title laws vary significantly across different states. It’s important to understand the regulations in your state if considering a salvage title vehicle purchase.

  • Florida salvage title laws
    • Vehicle is salvaged if repair costs exceed 75-80% of market value or insurance company replaces it
    • Must submit title to DHSMV for salvage branding within 72 hours
    • Rebuilt vehicles must pass inspection before re-registration
  • Texas salvage title regulations
    • Salvaged if repair costs exceed pre-damage value
    • Owners must apply for new salvage title from TxDMV
    • Rebuilt vehicles must pass safety and anti-theft inspections
  • New York’s salvage title rules
    • Salvage title if repairs exceed 75% of pre-damage retail value
    • Must repair, pass state police exam, and re-apply for title
    • Rebuilt titles designated as “Rebuilt Salvage
  • Illinois salvage title laws
    • Issued when damage exceeds market value
    • Rebuilt title requires Salvage Contract form and inspections

Frequently Asked Questions About Salvage Title Cars and Loans

Here are answers to some common questions about financing and purchasing vehicles with salvage titles:

Can you trade in a salvage title car?

Yes, you can trade in a car with a salvage title, however, you will get offered significantly less for the car than you would selling it privately. This is because most dealerships will be unwilling to accept the liability of selling a car that insurance companies have declared a total loss and unsafe to drive, even if the car was properly repaired.

How much does a salvage title reduce a car’s value?

A salvage title can reduce a car’s value by 20-40% compared to the same car with a clean title. Always get an appraisal first.

Can you get a loan on a rebuilt title car?

Yes, your chances of getting approved for financing are much higher if the salvage title vehicle has been repaired and inspected for a rebuilt title.

What credit score do you need to finance a salvage title car?

There’s no firm cutoff, but a credit score of at least 620 is recommended, and 720+ is ideal to get approved and get better rates.

How do insurers view rebuilt title cars?

Most insurers still consider rebuilt title cars high-risk. Limited basic coverage may be available but comprehensive and collision coverage is unlikely.

Can I get a salvage title car loan with bad credit?

It’s very challenging but may be possible with a large down payment, proof of income, and by applying with subprime lenders. Expect very high interest rates if approved.

What documents do I need to apply for a salvage loan?

You’ll need proof of income, government ID, car title, insurance quote, residence proof, mechanic inspection report, and down payment source documents.

My Final Thoughts

While cars with salvage titles can make great projects if you have the skills, they aren’t ideal daily driver cars for most people. But with effort and perseverance, you can likely find financing if your heart is set on one – just know the challenges involved before taking the plunge.

Sources and Citations For this Article

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Picture of Steve Momot - Author

Steve Momot - Author

Steve, a seasoned expert in the automotive industry, formerly held a car dealer license in Florida. With extensive experience spanning across car trading and mechanical work, he founded Autohitch. His mission? To guide both buyers and sellers through the intricate maze of car purchasing, ensuring a seamless and informed experience. Outside of the automotive world, Steve has a passion for fishing and capturing the beauty of nature through photography.

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