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Buying a salvage title car can appealing for bargain hunters who are willing to fix up a vehicle, but it may be difficult to secure financing for a car without a clean title.
A salvage or rebuilt title car is a car that’s previously been declared a total loss
Many major lenders won’t give you an auto loan for a salvage or rebuilt title car
You’ll have better luck getting an auto loan for a salvage title if you have spotless credit or a good relationship with a smaller bank or credit union
Buying a salvage title car, meaning a car that’s previously been declared a total loss, can be a great way to get a deal on a vehicle, but it may be harder to secure a car loan or get car insurance when you’re dealing with salvage or rebuilt title cars.
Still, salvage or rebuilt title cars can seem like hard deals to pass up, because buying a salvage title sold at auction or a rebuilt title can allow you to afford a make and model of car that might otherwise be far out of your price range. But if you’re planning on buying a salvage title, don’t count on a car loan from a big bank or major lender.
Lenders that would happily work with you on a car loan for a clean title car might flat out refuse to finance a salvage title, so try looking for local credit unions and smaller, neighborhood banks that may be willing to finance loans for salvage cars — especially if you already have a relationship with them. Even beyond financing, though, there are lots of caveats to consider if you’re thinking of buying a salvage title car.
If a car is in a severe accident, an insurance company may declare that car a total loss. Usually, a damaged car will be considered a total loss if the cost to repair the car is equal to a certain percentage of the car’s pre-accident value.
Some states set what’s called a total-loss threshold, which is a set number above which the vehicle has to be declared a total loss. For example, say your state’s total-loss threshold is set at 70%. That means that if repairing a damaged car would cost more than 70% of the car’s pre-crash value, it must be declared a total loss.
Once a car is totaled, it is given a salvage title. Many salvage titles are sold at auction — and you may be thinking that an auction would be a good place to snag a cheap ride. But salvage titles aren’t drivable until they’ve been repaired.
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A salvage title car that’s been repaired, inspected by the state and declared legally drivable again is given a rebuilt title. Remember, if you buy a salvage car, you probably won’t be able to legally drive it, or insure it, until it receives a rebuilt title.
There are lots of reasons why a car can be declared totaled: it may have been in an accident or been damaged in a flood, it may even have been stolen and lost all its valuable parts. If you’re considering buying and repairing a salvage title car, it’s important to remember that not all of the car’s damage will be visible. If you’re not a mechanic yourself, consult with a professional about what work the car might need and how much effort it will take to get it drivable again.
If you’re considering buying a rebuilt title car, meaning one that has already been approved by the state as drivable, you should still have a mechanic look over the car. Just because it’s been okayed for the road doesn’t mean the car won’t have any issues.
And getting insurance for a rebuilt title car will be tricky as well — car insurance companies deal in risk, and a rebuilt title car, because it’s already had major damage, will send up a red flag to car insurance companies.
Some car insurance providers simply won’t write a policy for a rebuilt title car, while others will offer limited insurance or coverage at higher rates. Most insurers who will cover a rebuilt title car won’t offer collision or comprehensive insurance, instead, the limited policies may only include liability coverage, which is required in most states and protects you from the financial burden if you cause property damage or injure someone with your vehicle. If you’re considering buying a rebuilt title car, contact your current car insurance company and find out if they’ll write a policy for a rebuilt title before you take the plunge.
As we mentioned above, getting an auto loan for a salvage or rebuilt title car can be tricky. Many major banks won’t provide financing for a salvage or rebuilt title. When you take out a car loan, the lender is agreeing to share a stake in the vehicle with you until you’ve paid off the loan completely.
Many lenders may not be willing to take the risk with a salvage or rebuilt title car. Your best bet is likely a smaller bank or local credit union, especially if you already have a relationship with an institution like that. If they provide loans for rebuilt title cars on a case-by-case basis, you’ll have a better shot at making your case if you’ve got an established relationship, or a stellar credit score.
If you can’t find an auto loan for a salvage or rebuilt title car, another option is to take out a personal loan to finance your purchase. Unlike auto loans, personal loans are unsecured, meaning your car doesn’t serve as collateral for the loan. Because of this, personal loans have much higher interest rates than auto loans, and will cost you more over the life of the loan.
Buying a salvage or rebuilt title can be a good way to get a second car, especially if you don’t mind having a project. But if you’d need to take out a personal loan to get one, or if you’re not sure you can afford any necessary repairs, you may want to think carefully about whether this is the best move for you.
Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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