How to Get an Auto Loan for a Car With a Salvage Title

A salvage title is a legal document issued by the Department of Motor Vehicles (DMV) if an insurance company deems your car a total loss. Vehicles with a salvage title are often cheaper since they need extensive repairs to be considered roadworthy again. That can be advantageous for those looking for cheaper deals.

An auto loan can help you finance a salvage title car, but depending on the state, it may be challenging to get. Other ways to finance a salvage title car include paying in cash, getting a personal loan or opting for dealer financing.

Financing a salvage title car may seem daunting, but it doesn't have to be. Learn about your options and make an informed decision that fits your budget and lifestyle.

A salvage title is a designation given to a car when it’s declared a total loss by an insurance company. It’s often given when the cost of repairs exceeds the vehicle's value, but the overall requirements to get a salvage title can vary by state. For instance, in Iowa, a salvage title is given if the cost to repair the vehicle is greater than 70% of the car’s fair market value. On the other hand, in California, if the cost of repair and the total salvage value is higher than the car’s actual cash value, it’s deemed a total loss.

Once your vehicle is deemed a total loss, you or the insurer will contact the Department of Motor Vehicles (DMV) to have a salvage title issued.

When a vehicle has a salvage title, it typically loses a significant amount of its value. Kelley Blue Book notes that the price could be deducted by 20% to 40%, but the actual value will depend on a private appraisal.

Apart from a salvage title, some cars may also have a branded title. This indicates that it can function but has a major issue or concern, such as having a defect or issues with the odometers, but the issue is not quite as major to deem it a salvage title. There are also rebuilt or reconstructed titles, which indicate that the vehicle was once a total loss but has been rebuilt and repaired enough to become roadworthy.

Depending on the state, there are different requirements when it comes to disclosing car damage on a salvage title. Most states require sellers to disclose any previous damage or repairs to potential buyers, but the level of detail required and the specific disclosures vary. In some states, sellers are required to provide a written disclosure statement, while in others, a verbal disclosure statement is sufficient. Ensure that you are complying with the laws in your state by checking the requirements.

Purchasing a salvage title car has its fair share of advantages and disadvantages. While it ultimately depends on your circumstances, it’s important to have an overview of the pros and cons to determine whether it’s worth the risk.

Securing an auto loan for salvage title cars can be more challenging than doing so for a car with a clean title. Lenders view a salvage title car as high risk, thanks to the history of damage and repairs, making them unlikely to provide financing. That said, finding an auto loan for a salvage title car is not impossible. It simply may require more shopping around to find a suitable provider.

Nevertheless, it’s important to be wary of lenders. Some lenders may offer deals that are too good to be true or have costly upfront fees — all in an effort to scam you. So potential loan applicants should make sure to carefully research the lender’s reputation, compare interest rates and fees and look at reviews for any signs of a scam.

If you are approved for an auto loan for a salvage title car, expect less favorable terms, such as higher interest rates, shorter loan terms or higher down payments. Lenders may do this to hedge against the risk of financing a salvage title car, but it will still depend on the unique circumstance of your application.

Buying a salvage title car is an affordable option — but it comes with risks. Learning more about the process by reviewing the answers to frequently asked questions can help you better understand those risks and determine whether this path is right for you.