For most of us, saving money is one of the prime concerns when looking for a new car, and you can go about it in a number of ways. If you’re a serious bargain hunter, you might come across salvage title cars from time to time. These are vehicles that have suffered extensive damage, and they can often sell for very low prices.
If you’re handy and enjoy working on cars, it might be tempting to pick up a salvage title vehicle and start a project. While this is sometimes a good idea, it also comes with a load of risks. At Car and Driver, we’re here to explain the pros and cons of picking up a car or truck with a salvage title. Keep reading to find out if it’s the right path for you.
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What Is a Salvage Title?
A salvage title is a document issued by a state DMV (Department of Motor Vehicles) that indicates a vehicle has suffered extensive damage and is declared a total loss. Typically, a car must lose 75% or more of its pre-collision market value and an insurance company must determine the vehicle is beyond repair for a state to issue a salvage title. A vehicle with a salvage title is typically not legal to drive on public roads until it has received a rebuilt title after being repaired and passing a state inspection.
You might be wondering how these cars end up back on the market after suffering catastrophic damage. In most cases, it’s because an insurance company sells them to cover part of a payout. For example, if a car is involved in a serious wreck and loses 80% of its pre-crash value, it’s probably not worth the cost to repair it. In this case, the insurance provider will likely write off the wreck as a total loss and provide a payout to the owner.
Next, the insurance company will take possession of the car and might sell it to offset the cost of the claim. While many of these cars never get repaired, some eventually end up refurbished and back on the market. When this happens, the state DMV will issue a rebuilt title.
While most salvage titles are issued due to collisions, a car can receive one for a variety of reasons. For example, a vehicle that was submerged or flooded might receive a salvage title because it could suffer from mold or electrical issues. Smoke, fire, vandalism, parts theft, and hail damage can also earn a car a salvage title.
It’s important to remember each state has its own laws regarding salvage titles and when they’re required. If you’re interested in buying a salvage title car, make sure you research your state’s requirements carefully. In most cases, you might not be able to drive one of these vehicles on public roads until it is adequately repaired and passes inspection for a rebuilt title. Another consideration is that many insurance companies will not insure a salvaged vehicle even if it has been repaired and rebuilt.
Buying a Salvage Title Car
If you’re thinking about buying a salvage title car, it’s important to take a few simple steps. These can ensure you don’t waste your time or money on a vehicle that’s not worth it. Consider the following tips when shopping for salvage title cars:
Know the Rules
Each state treats salvage titles differently, and it’s important to know how local regulations will affect your purchase. To earn a salvage title, a vehicle must experience a serious loss in value. However, the exact parameters vary by state. Some states will issue a salvage title to cars that have lost as little as 50% of their value, while others will only issue one if the value of the damages exceeds 80%.
If your state is on the lower side of the spectrum, a salvage title car might be a better value than in other states. Even if this is the case, review the history of each car carefully to see what happened to it and how much value it lost. If, for example, a vehicle was damaged in a collision, the frame and crash structure may be damaged and cannot be reused. This is a major cost and safety issue to consider. Remember, the loss in value is in relation to the car’s pre-collision value rather than its original value. Try to find out how much the vehicle was worth before it met its demise.
Many states don’t allow salvage title cars to drive on public roads and many insurers will not insure salvage vehicles. Depending on your plans for the vehicle, this could be a serious issue, so do your homework carefully.
Get the Car Inspected
When buying salvage title vehicles, even if they have been inspected and received a rebuilt title, it’s essential to have a good understanding of the damage you’re dealing with. Some sellers might not be completely honest, and it can be challenging to find details about a car’s history. One of the best ways to overcome these difficulties is to have the car inspected by a trustworthy mechanic.
A good technician will be able to inspect all the car’s structural and mechanical systems and give you an accurate diagnosis of its condition. They might also spot details the seller missed or hid. Although you’ll have to spend a bit of money on an inspection, it’s important not to skim over this step. Salvage cars can have serious safety and performance issues concealed in plain sight.
Think About Financing Options
Most car purchases are completed with the help of loans. It can be difficult, however, to arrange financing for a salvage vehicle. Lenders justifiably view these cars as risky investments due to their histories and are usually hesitant to put money into them. If possible, look for a car you can buy outright without going to lenders.
If you found a good deal and absolutely need to take out a loan, you might be able to get one with excellent credit. It also helps to have a good relationship with the lender. If necessary, you can take out a personal loan instead of a dedicated auto finance loan. However, in addition to the initial purchase cost, keep in mind any required costs of repair as well as likely higher ongoing costs due to mold, electrical issues, and replacement of lower quality parts used in the initial repair that may develop over time.
Look at the Vehicle’s History
As mentioned, it’s imperative to get a detailed vehicle history report when shopping for salvage vehicles. You’ll want to know exactly what happened to the vehicle, when it happened, and what kind of restoration it received. This can give you greater insight into its safety and suitability for your plans. For example, if you find out a car has a salvage title but has also been insured and driven since the accident, it’s probably a safer bet than untried vehicles.
If you can get a vehicle history report from CARFAX or another trusted company, that’s a good start. You can also use The National Motor Vehicle Title Information System (NMVTIS) website to research the car’s history. Finally, try to find maintenance records and receipts from the shop that made the repairs so you can get an itemized list of what they did.
The Advantages of Buying a Salvage Title Vehicle
Although it can be a risky proposition, buying salvage title cars can have a few benefits, including:
Low Prices
The most obvious benefit of buying a car with a salvage title is the price. These cars are not highly sought after, and very few people have the skills or patience to restore them. If you’re looking for a good deal and aren’t worried about looks, a salvage title car might be a good option.
That being said, make sure you’re truly getting a bargain. Sellers usually try to get as much as they can for their products, so it’s important to do your research. In some cases, you might find a super cheap car that mostly suffers from cosmetic damage.
DIY Fixes
Many people who buy salvage title vehicles are trained or amateur mechanics who enjoy putting the work in. These individuals can often get the most out of a car that’s suffered extreme damage. If you find a rare vehicle or a favorite older car that’s seen better days, it might be fun to bring it back to life.
Spare Parts
If you’re an automotive hobbyist or a professional mechanic, salvage vehicles might also be great sources of car parts for your projects. Even if a car is unsafe or unreliable to drive, it could be a veritable treasure trove of parts and will probably come pretty cheap. This is especially true if you’re looking for older car parts that are hard to find at a good price.
You Might Get Lucky
Every once in a while, you might come across a salvaged car that’s priced well below its value. For example, you could find a famously reliable vehicle that mostly suffers from hail or water damage. Although rare, it’s worth keeping an eye out for these cars.
The Risks of Buying a Car with a Salvage Title
Salvage title cars are risky. These are some of the disadvantages you should be aware of if shopping for salvaged cars:
Safety
The main risk of buying a salvage title vehicle is safety. This is why they are illegal to drive in some states and many insurance companies won’t cover them. The safety of salvage vehicles is often severely compromised during wrecks. In some cases, repair shops cut corners to avoid investing money in products with a low resale value. If you plan to buy a salvaged car, make sure you buy from a trusted seller and get a complete inspection and vehicle history report.
Repair Costs and Reliability
Even if it’s been restored, a salvage title car could still have long-term mechanical issues that never resolve completely. This could make it unreliable as a daily ride and can saddle you with ongoing repair costs that might outpace the car’s original price. If you’re planning to buy a salvaged vehicle, it might be helpful to have some mechanical skills of your own.
Few Resale Options
If you want a car you can sell later on, a salvage title vehicle is probably your worst bet. These automobiles have very few resale options and won’t be accepted as trade-ins. Even if you manage to sell a salvage title car, it won’t fetch a very high price.
Financing
As mentioned, lenders view salvage titles with suspicion and are unlikely to issue loans for them. If you plan to buy a car with a salvage title, try to purchase it outright with your own money.
Fraudulent Advertising
Because salvage-titled cars have low resale prices and little appeal, some sellers might resort to dishonest tactics to sell them. This can include hiding some of the damages or advertising repairs they haven’t made. Buy from a trusted business if you want to get a salvaged car.
Few Insurance Options
Even if you manage to find a reliable, salvaged vehicle at a good price, it might still be challenging to drive it. You might have trouble finding an insurance company that will cover it, and in some cases, it might be illegal to drive. Know your options before making a purchase.
Verdict
As you can see, buying a car with a salvage title is a risky business. You are purchasing a vehicle that has experienced significant damage. The full extent of that damage may not be known until it is further tested in a collision. Salvage vehicles should not be considered by average consumers. However, if you’re a bargain hunter or a mechanic who needs parts, it could be worth it. Do your research, and stay safe on the road!
Finance Editor
Jim Slavik is a financial services expert with 30 years of strategic and operational experience including leading underwriting, loan administration, customer service and collections. He has held C-suite credit operations roles for Fortune 100 and private equity companies for credit cards, personal loans, lease-to-own, auto loans, mortgages, and insurance for prime and sub-prime borrowers.
Currently Mr. Slavik is an independent financial services consultant for private equity firms and a contributor for expert networks such as GLG, Guidepoint, and Level company amongst others.
