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Salvage Title Cars – Too Good to be True?

You need a new car so the search for a great used car is on and you just ran across an ad for a late model Toyota that is selling for $4000 under market value. The photos show a great looking car, the description sounds good, you are sure you found your next car until the seller mentions that the vehicle has a salvage title. While they claim there is no structural damage, if it sounds too good to be true, it probably is.

The majority of salvage title cars sell for at least five percent under market value. While this seems like a great deal, the true value is well below that figure. According to Consumer Reports, a salvage title car is worth only 50 percent of its Kelley Blue Book (KBB) value.

What Exactly is a Salvage Title Car?

An insurance company will total a vehicle when it costs more to repair the vehicle than it is worth. This can happen with cars that have been in accidents, stolen or even severely hail or flood damaged. When a car is totaled it is issued a salvage title which warns prospective buyers that the car is considered un-repairable.  Salvage title cars are sold to rebuilders and salvage yards. The Consumer Federation Of America found that 2.5 million cars are totaled every year and 1.5 million are put back on the road after repairs.

Insurance and Financing Can be Difficult

Financing and insuring a salvage title vehicle can be difficult. The majority of insurance companies will not write a comprehensive or collision policy on a salvage title vehicle because it is very difficult to assign a value to these cars. Another issue is the fact that serious structural damage is common, making them very dangerous if not properly repaired. 

Be prepared to pay cash if you are in the market for a salvage title car. Financing can be a problem. This directly ties into the insurance issue, if it is impossible to carry full coverage on a car most finance companies will not be willing to lend against it.

Salvage Title Cars Can be Dangerous

While salvage title cars can be a bargain, they are not always safe. Rebuilders have been known to cut corners, putting you at risk. Alignment and structural issues can be quite common but safety features can be compromised as well. Bobby Ellsworth was killed when his rebuilt salvage title truck crashed and the airbags had been stuffed with paper towels.

While this may seem like a horrid thing to do, it is not as uncommon as you would hope. The California Highway Alliance has estimated that one out of every 25 rebuilt cars has dummy airbags in it. Inspections are spotty at best and there is very little federal oversight when it comes to salvage title cars.

Resell Value is Low

Salvage title cars are so difficult to value that KBB doesn’t even attempt to put a price on them. The risk involved with these cars means that anyone willing to buy one is going to expect a big discount. On average wholesalers pay roughly 30 percent of the KBB book value.

If you go out on a limb and buy a salvage title car, plan on holding on it to for quite awhile. Financing and insurance issues make the market quite small for these types of vehicles. Add in the risk involved with these cars and most potential buyers will be running for the door when they hear it has a salvage title.

Fraud is another issue. Title washing happens when a salvage title car is moved to s state where an inspection is not required and a clean title will be issued. Cars with a clean title are worth thousands more so less than honest rebuilders will often move cars until they have a clean title.

In almost all cases buying a salvage title car is a risk. Before you take the plunge consider all your options and make sure you fully understand what you are buying.