Purchasing a car is a major expense, so most buyers need an auto loan to finance the purchase. But if you want to buy a used car with a salvage title, getting approved for financing may be tricky. Lenders view salvage title vehicles as risky investments, but some options exist if you know where to look.
What is a Salvage Title?
A car receives a salvage title when an insurance company deems it a total loss, usually due to extreme damage from a major accident, flood, fire, or other event. The cost to repair the vehicle exceeds its current value. Once branded as salvage, the car’s title is permanently marked to indicate its status.
Salvage title cars are cheaper to purchase but often still need extensive repairs. And most standard lenders shy away from financing vehicles with questionable histories. That’s what makes getting a loan difficult.
Challenges of Getting a Salvage Title Loan
Several factors make lenders reluctant to finance salvage title cars:
- Expensive repairs – The vehicle may still require thousands in fixes that the borrower must incorporate into the loan.
- Safety concerns – Damaged parts may compromise the car’s safety for driving, for both the borrower and other motorists.
- Inability to resell – The salvage brand severely hurts resale value, leaving the lender with less asset protection if the borrower defaults.
- Fraud risks – Dishonest sellers may hide extensive damage without the buyer’s knowledge, skewing the true value.
Due to these risks, most standard lenders like banks and credit unions will not offer loans on salvage title cars. But some specialized subprime lenders may consider applications on a case-by-case basis.
Improving Your Salvage Title Loan Eligibility
Though difficult, getting financing for a salvage vehicle is not impossible. Having a rebuilt title, a thorough inspection, and good credit can better your chances with subprime lenders.
- Rebuilt title – Issued after repairs, this indicates the car meets safety standards again. Some lenders require this first.
- Inspection – Have a trusted mechanic assess the car to identify any issues. Provide this report to the lender.
- Good credit – Lenders view borrowers with credit scores above 640 more favorably to offset the risk. Maintaining solid credit helps your case.
Where to Find a Salvage Title Loan
While limited, some lenders to consider for salvage title loans include:
- Local credit unions, especially if you have an existing relationship
- Subprime auto lenders like Auto Credit Express and Complete Auto Loans
- Larger online lenders like CarMax and LendingTree
- Peer-to-peer lending marketplaces like Upstart and Lending Club
Run searches for “salvage title loans near me” and compare multiple quotes. Avoid lenders promoting guaranteed approvals – these may have excessively high rates or sketchy practices. Carefully read all terms before signing a loan contract.
The Bottom Line
Obtaining financing for a salvage title car requires effort, but is achievable if you select the right lender and prove the vehicle’s roadworthiness. For the best rates and terms, have a rebuilt title, inspection documentation, and good credit. With extra diligence, you can get approved for an auto loan even with a branded title.
FAQ
Will banks finance a car with a rebuilt title?
Similar to insurance, many lenders might refuse to finance a car with a rebuilt title because of the risk involved. If you do manage to locate a lender willing to accept this, your interest rate will probably be extremely high. If you want to buy a car like that, you’ll probably have to pay cash for it.
What are the disadvantages of a salvage title?
It’s hard to qualify for insurance or financing. For cars with salvage titles, insurance companies typically provide only limited coverage, and occasionally none at all. Finding a bank or credit union that will grant a loan for a vehicle with a salvage title can also be challenging.
Will Capital One finance a rebuilt title?
There are few financing options available because most lenders, including Capital One, won’t lend you money to purchase a vehicle with a salvage title. Because it’s harder to sell a car with a salvage title, you might end up having to keep it.
Does a salvage title hurt the value of a car?
A car with a salvage title is typically worth 20% to 40% less than one with a clean title, according to Kelley Blue Book (KBB). You should anticipate a much lower “total loss” payout if you file a claim for a salvaged vehicle than you might with a “clean” vehicle. “.