If the car you own or are looking to buy has a salvage title, it means an insurance company has deemed the car a total loss. When a car gets a salvage title, it has been damaged beyond repair, exceeding its market value. This can happen from a car accident, theft, vandalism, or by a natural disaster like a flood.
Depending on the state you live in, a car that has damage that exceeds 65% to 90% of its market value will be considered a total loss. For instance, a 65% damage rule applies in Nevada, while Maryland has a 75% of market value salvage rule. Michigan has a broader rule, where total damages must exceed 75% to 91% of the cash value in pre-damaged condition.
How does a salvage title work?
After filing a claim for car damages, the insurance company will determine the cost to repair the vehicle. If it exceeds the state’s damage rule percentage, the vehicle is determined to be a total loss.
At this point, the owner has a choice to make. Either they can retain salvage of the vehicle or sign it over to the insurance company. If the owner retains salvage, they will receive the totaled value, less any pre-existing (prior to the accident) damage and a salvage fee. If the insurance company retains salvage, the insured will receive the market value of the vehicle, minus pre-existing damage.
Whoever retains salvage of the vehicle will then apply with the state’s Department of Motor Vehicles (DMV) to get a salvage title once they complete repairs. The process varies by state, but typically involves filling out a salvage title application, paying fees and completing a salvage vehicle inspection.
The documentation varies to apply for a salvage title, but it usually includes the owner’s driver’s license, certificate of salvage for the car, and proof of ownership, such as a bill of sale.
Once the inspector deems the vehicle roadworthy again, you may need to meet other requirements before getting a new title for the car. In Maryland, for example, the owner will receive a 30-day registration to allow them to drive the car to an authorized inspection station to get a safety inspection. Once complete, they can register the car again and get a full registration sticker.
To know how a salvage title works in your state, check the DMV website for your state.
Pros and cons of buying a salvage title car
While there are pros to buying a salvage title car, there are also cons to consider before buying one.
Pros of buying a salvage title car
- Inexpensive: If you’re looking for a cheap car, a salvage title car may be your best bet. These cars often sell for less than half of the market value of a similar car of the same year and mileage that has a clean title.
- Cheap parts car: If you’re looking to restore another car of the same year, make, and model, a salvage title car could be a cheap way to get parts, especially if the parts are expensive or hard-to-find.
- Not all cars are heavily damaged: While many salvage title cars have mechanical damage, not all of them do. Some may have been “totaled” with cosmetic damage, making them relatively easy to repair.
Cons of buying a salvage title car
- Hard to get financing or insurance: Most banks and lenders won’t want to offer financing for a salvage title car, as they can’t place a market value on it. Insurance companies are also reluctant, with many refusing to insure salvage title cars or only offering liability coverage.
- Extent of damage may be unknown: If you’re buying a car with a salvage title, it may not look like it’s in bad shape. But then, you buy it and take it to a mechanic or body shop, just to find out the extent of the damage is far worse than you expected. That great deal you just got now isn’t such a great deal when you’re spending more money to get it road-worthy.
- No trade-in value: If you buy the car expecting to trade it in to a dealership, you probably won’t be able to. Salvage cars aren’t valued by pricing guides dealers generally use, like Kelley Blue Book or NADA. Without a market value, a dealer won’t want to make you an offer, or will only offer a fraction of what the car could be worth.
- Questionable safety: If you buy a repaired salvage car, you’re putting your safety in their hands. You could find out too late that new airbags were never installed or the seller cut corners when repairing the vehicle. If you can, have an experienced mechanic look over the car carefully, drive, and inspect it before you decide on the purchase.
- Fraud: When you buy a salvage title car, you’re depending on the seller to be honest and upfront about the damages. If the seller misrepresents the extent of the damage, you typically have no recourse, especially if it’s a private seller.
How to insure a car with a salvage title
It can be challenging to insure a car with a salvage title. The insurers that will insure a car with a salvage title may only allow you to put liability insurance on the car, even if you want full coverage.
If you’re thinking of buying a salvage title car, here are the steps to take to insure it:
- Take photos: This may be a requirement from the insurance company, but even if it’s not, it’s a good idea to take photos of all sides of the car and under the hood, if parts were replaced. This way, if the car is damaged in the future, you can show its condition when you bought it.
- Gather documentation: The documentation you need will vary by states. Some states require a rebuilt or restored title certifying the car is safe to drive. You may also need the original repair estimate showing the damage that totaled it and a certified mechanic’s statement showing the car is in good working order.
- Get quotes: Although it can be hard to find a salvage title car insurer, it’s not impossible. Though you can get quotes online, it may be better to call the insurance company to find out if they insure salvage titles and, if so, what coverages are available and the cost.
Be honest. It can be tempting to lie about the salvage title, but insurance companies are electronically linked to the state’s DMV. If the car has a salvage title, the VIN will identify it as such, preventing the agent from moving forward unless the company will insure a salvage title vehicle. Be upfront about the car’s status so you can get the right coverage in place.