Think again. A friend of mine bought a salvage title car for his son. That was seven years ago, and the car is still going, as trouble-free as you could ask for. When he bought one for himself, I thought: actions speak louder than words.
We need to know more about this.
What Is A Salvage Title?
What exactly is a salvage title, anyway?
It begins with what people sometimes refer to as a car being “totaled” or “written off.” Forget the image of a mangled, twisted piece of unrecognizable wreckage. Total is simply a shorthand term for “total loss,” meaning the insurance company pays out the car’s full insured value. Most often, it’s a crash which leads to a car being totaled, but cars can get totaled after a fire, flood, hail, or even theft. (If a car is stolen and not recovered for 3-4 weeks, depending on the jurisdiction, the insurance companies have to pay the insured, which, of course, turns the theft into a total loss.)
Insurance companies typically total a car damaged by accident, fire, hail or flood when that damage is greater than its value. They naturally want to pay the smallest amount possible, and if that’s the value of the car, then that’s what they pay. When they do that, they effectively buy the car, and its title passes to them. If they sell it subsequently, they have to sell it with what’s called a salvage title.
Why Even Consider A Salvage Title?
A car only gets a salvage title when something bad happened to it. Buying a used car is such a crapshoot to begin with, why compound that by even thinking about buying one with a salvage title? One word, the word we associate most with Get Rich Slowly: money.
A fully repaired car with a salvage title typically sells for 40% less than one with a clean title. If you were eyeing that $15,000 used minivan, a comparable (i.e. fully repaired) one with a salvage title would typically go for $9,000. That’s a savings of $6,000.
That’s a pretty compelling number if you’re interested in saving money.
I don’t know if you heard, but someone just paid more than $30 million for a used Ferrari at the Pebble Beach auctions last week. The car was in a major wreck, but it was restored to a far better condition than when it left the factory.
The point is: a wreck doesn’t necessarily mean the utter demise of a car. Any car can be repaired or restored to mint condition. The trick, of course, is not to overspend.
Does A Salvage Title Make Sense For You?
The first thing you need to do is find out if your state allows vehicles with a salvage title on the road. Colorado, where I live, does. In fact, a friend recently bought one, and that’s what got me started looking into this topic. So, if your state allows, you could potentially save a lot of money on your next car if you’re one of the following kinds of people:
1. You drive your cars for many years. A salvage title stays with the car for the rest of its life. If you bought it for 60% of its normal value, you’ll only be able to get 60% of its value when you sell it. If you usually drive a car for ten years or more, the difference at the time of selling will be so small, that won’t hurt you. The net result is you save a lot. However, if you sell your car every two or three years, your saving at the time of buying will get negated at the time of selling, when you’ll have a harder time trying to sell it, and you’ll have to take less. (In most states, any seller has to disclose a salvage title at the time of sale.) Also keep in mind most dealers will not take a car with a salvage title as a trade-in.
None of those issues present a problem if you plan to drive the car into the ground and then give it to your son going off to college in thirty five years’ time. 🙂
2. You usually buy older cars to begin with. The cost to repair a new car is not much different that repairing an older car. That means it will take pretty extensive damage to a fairly new car to get it totaled, because it’s still quite valuable. On the other hand, an older car is worth much less, even if it’s in good condition, and it doesn’t take much in the way of damage to get the insurance company to total it — a fender bender will often do it.
What that means is you can save 30-40% on an older car with a salvage title that has suffered only minor damage. (It’s a good general rule to stay away from salvage title cars less than three or four years old.)
3. You’re not afraid of doing some repair work yourself. If you know your way around a junk yard and you’re not averse to scraping your knuckles a bit, you can save even more than the 30-40% by buying a salvage title car that hasn’t been fully repaired yet. If you can figure the cost of the repairs still needed, you deduct that from the 60% before you make your offer. Then you contribute some weekend and evening sweat equity and add that value back to the car. And you know the quality of the work that’s been done.
Tips For Buying A Salvage Title Car
As the saying goes, there’s no free lunch (or: you get nothing for nothing). In order to capture the gain of having a serviceable car at a 40% discount, you have to put in some time you wouldn’t normally have to. Remember your first reaction above when you first heard the term “salvage title?” Everyone you deal with will have the same reaction. And because they’re not getting a big discount on a purchase, they don’t have any strong incentive to stray outside the box to accommodate you.
1. Financing: You will be able to get financing for a car with a salvage title, but it won’t be nearly as easy as for one with a regular title. The banks’ problem is the resale value of the car, which is much less than that of a comparable car with no title problems. If you’re paying a lot less for the car to begin with, this isn’t that much of a problem. Expect to do more shopping, though. Personally, I think cash is the best way to buy a salvage-titled car, especially because of the next point.
2. Insurance: Insurance companies, for the most part, won’t offer the insurance (comprehensive) which lenders require. They will offer collision and liability coverage, but, again, expect some pushback and more time shopping around. If you buy an older car for cheap, your insurance requirements aren’t that much, and you can get what you need. Most insurance companies will insure salvage titles cars just fine. Just be mindful that for them there’s not difference in repair costs, so don’t expect too much of a price break from them, even though your car will be a lot cheaper than a comparable “regular” car.
3. History: Before you even make an offer on a car with a salvage title, you’d be well advised to spend the time necessary to track the entire history of the car’s title. In particular, it’s important to find out (not from the person trying to sell you the car) what happened: what type of crash, and the nature and extent of the damage. Carfax is a good starting point, but expect to do more digging.
Also included in the history research is the seller. Some people who sell salvage title cars are reputable, others not. You absolutely have to check with the Better Business Bureau to see if this seller has had issues.
4. Inspection: It is good practice to have a professional inspect any used car you’re interested in buying . It usually costs a hundred dollars or two, but I think of that as insurance: much better to find out about any defects before you plonk down your money. If it’s a good idea for all used cars, it’s essential for a salvage titled car. In particular, you need to have someone to check out the wheel alignment. In the old days, they used to talk about frame damage, but most of today’s cars don’t have frames any more — the entire body acts as the frame. If the axles get twisted out of alignment, the car is a pain to drive and it will double your tire wear.
5. Pre-registration: Some states require a police inspection and a certificate from the police before they will register a car with a salvage title. This is aimed at making it difficult for stolen cars to get back into circulation. You will need to do your homework on this issue before making your purchase.
Good wisdom says even if you buy a clean titled used car you should do most of these things (e.g. have someone check out the car and research the title history) so the additional legwork might not be that much for you.
My wife and I tend to buy used cars and then keep them till they’re seriously long in the tooth, and then give them away. Given the success my friend had with his salvage title car, I’m going to seriously consider going that route next time we buy. The key, I believe, is to be very careful, and be prepared to kiss many frogs before finding the salvage title prince.
Like many things in life, there’s a reward for risk and/or hard work. If you’re prepared to consider buying your next car with a salvage title, you may be able to pocket a significant savings. It’s not for everyone, obviously, but it’s nice to know an option like this exists.