A salvage title car is an official indication that a vehicle has been damaged and is considered a total loss by an insurance company that paid out on a damaged vehicle claim.
In most cases, the vehicle has been involved in a significant accident and the high cost of repairing the vehicle may be more than what it's worth. In that scenario, the insurance company will declare a total loss, and take repossession of that vehicle.
Looking to recoup its costs, the insurance firm will often resell the vehicle to an auto repair company where the car, truck or SUV is repaired or even rebuilt. By law in most states, the next title on that repaired or rebuilt vehicle is referred to as a salvage title, as a means of letting future potential buyers know the vehicle has been damaged.
Salvage title laws do vary state-to-state, and it's always advisable to know the facts in your state on a salvage title car before you buy one.
While categories vary on a state-to-state basis, a salvage title may signal a car is damaged in the following ways:
- The vehicle has collision damage from an accident.
- The vehicle has experienced fire damage.
- The vehicle has experienced flooding damage.
- The car has been stolen, and parts may be missing, and other damage done to the vehicle.
- The vehicle was formerly a heavily-used taxi, law enforcement vehicle, was returned under a warranty, or has been remanufactured for resale purposes.
Should I Buy a Salvage Title Car?
If you're used to working on and repairing vehicles, a salvage title car purchase can save you money. But salvage car purchases come with significant risks, including these:
- Financing: Banks, auto finance companies, and other lenders are reluctant to finance cars with salvage titles. That's typical because salvage vehicles don't have a Blue Book value (making it very difficult to place a financial value on a salvage title car).
- Unknown History: Auto lenders also hold back on financing because they're unsure of a salvage title car's accident and repair history, or don't fully know how stable the vehicle will be once it hits the road.
- Low Trade-in Value: Owners of salvage title cars can expect to face problems trading in the vehicle if and when they decide to buy a new car, truck or SUV. Usually, auto dealers won't accept salvage title cars as trade-ins, due to the inherently higher risk of having trouble "flipping" the vehicle and selling it to another buyer.
- Low Insurance Value: If you buy a salvage title car and it's in an accident, the insurance company likely won't be paying out big money to cover the damage, given the salvage title car's low financial value in the first place.
- High Interest and Short-Loan Terms: If an auto lender decides to finance a salvage title car, truck or SUV, the borrower can expect higher interest rates and shorter loan-repayment timetables, as auto lenders seek to protect themselves from problems linked to salvage title cars, due to the high-risk collateral of a salvage title vehicle.
Keys to Buying a Salvage Title Car
It's advisable to do some significant due diligence on a new vehicle purchase, to identify it as a salvage title car. In some cases, shady vehicle sellers may steer the vehicle to a state, like New York or New Jersey that have relatively lax regulations on salvage car titles.
This practice, known as title washing, may hide the damage on a car-for-sale and wind up costing the buyer more to purchase the vehicle and lead to unexpected auto repair costs.
Nip that problem in the bud with a vehicle history report that details any prior salvage titles attached to the vehicle. Vehicle history tracking products like AutoCheck Vehicle History Report, a part of Experian, conducts due diligence for car buyers for as low as $24.99 per report.
If you're at the "serious" car-buying stage, also take the vehicle to a trusted auto mechanic before signing on the dotted line. A good mechanic knows where to look for potential auto damage, will know where repairs have already been made and will recognize any new or used parts that have been installed that could signal that a vehicle has experienced serious damage, and cheaper parts have replaced original parts.
Or, track the vehicle's history via the VIN number, which provides useful data on a vehicle's history, like how many owners the vehicle had, title and accident history, and odometer readings when the vehicle changed owners. You can check a VIN number at the National Insurance Crime Bureau (NICB), and its VINCheck service, provided free of charge.
The Signs of a Salvage Title Car
While you should always check the vehicle history report and have a trusted auto mechanic review the vehicles for problems, there are obvious signs that a vehicle is basically a rebuilt lemon and should be avoided.
Look for these tell-tale signs:
- Most states require direct identification of the vehicle that's been in a salvage situation on the title. Ask to see the title before anything else.
- The vehicle paint easily chips off or doesn't match the rest of the vehicle (This could indicate an intent to hide damage by the seller.)
- A Certified Automotive Parts Association (CAPA) sticker on any vehicle part or component could signal collision repair.
- Any wheel misalignment could point to frame collision damage.
- A car door that doesn't open or close properly could also mean the vehicle underwent major repairs (and was improperly repaired)
- If the vehicle's hood is misaligned and doesn't close perfectly, that could be an indicator of a major collision impacting the front and sides of the vehicle.
- If your electrical components don't work properly—especially if they flick on-and-off intermittently—that could be a sign of significant flood damage to the vehicle.
Due Diligence When Buying a Salvage Title Car
1. Check the Original Repairs
Ask the salvage title car's insurance company for the original repair estimate of all work done on the vehicle. That will give you a framework on how much damage the salvage title car has absorbed, and can help you negotiate a better purchase price.
2. Research Alternative Auto Financing Options
Chances are, getting a good auto financing deal for a salvage title car isn't easy. That's why you should also focus on having a strong cash reserve to lessen the need for auto financing.
You should also research alternative financing options, like a personal loan or a home equity line of credit to finance the purchase at a better interest rate, and with a potentially longer repayment timetable.
3. Investigate State Lemon Law Purchase Options
Some refurbished cars get a different, state-sanctioned stamp of approval in the form of a so-called "lemon law" used car sale. In that scenario, repaired vehicles are purchased by auto manufacturers and resold in dealer lots. A growing number of states have laws that provide a legal remedy for purchasing a vehicle with insurmountable repair problems.
Under most state lemon laws, a dealer must, at no cost to the buyer, repair any problems with the vehicle over a specified period of time or provide for full reimbursement for the costs of such repairs.
In the event an auto dealer is unable to repair the vehicle after a reasonable amount of time, depending on a state's lemon law statutes, the buyer is entitled to a complete refund of the damaged vehicle's purchase price.
Your state department of motor vehicles has detailed information on state lemon laws, including an explanation on salvage titles, and how to properly identify them. Here's a state-by-state list of U.S. motor vehicle departments.
What to Do If You Unknowingly Purchased a Salvage Title Car
If you unknowingly purchased a salvage title car, and want to back out of the deal, you do have legal recourse.
Take these steps to fix the problem of buying a salvaged title car without prior knowledge:
1. Contact Your State's Consumer Protection Office
Your home state's consumer protection office can offer some valuable guidance on the purchase of a salvage title car, and get you on the path to a refund. Here's a list of all state-by-state offices across the U.S.
2. Get Legal Help
Contact the National Association of Consumer Advocates for a list of reputable lawyers in your state who handle salvage title car issues.
3. Start a Paper Trail
Leverage your "buyer's guide" to make your case the salvage title car was fraudulently sold. The U.S. Federal Trade Commission mandates that used-auto dealers provide new car customers with a buyer's guide on every vehicle on the lot, which covers a car's warranty information in the event of a dispute between a buyer and seller.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.