How to save big with a salvage title

How to save big with a salvage title

What was your first reaction when you saw “salvage title” in the headline? Cringe and shudder? Outrage, that anybody could seriously suggest something so risky on a respectable site like this? In mixed company, no less? Step away from the ledge, slowly, exhale, and then hear me out.

I used to feel the same way … until my friend Peter showed me his “new” 4Runner. Peter is a super-frugalista, and he saw the surprise in my eyes. He laughed, “Hey, it's a salvage title — I got it real cheap.”

He bought his son one of those, seven years back, and that car has run problem-free all that time. So he thought, “Why not get one for myself?”

Why not, indeed?

What is a Salvage Title?

It begins with what people sometimes refer to as a car being “totaled” or “written off.” “Total” is simply shorthand for “total loss,” meaning the amount an insurance company pays out for the car's full insured value. Most often, it's a collision that causes a car to be totaled; but they can also be totaled after a fire, flood, hail, or even theft. (If a car is stolen and not recovered for three to four 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 subsequently sell it, they are required 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 crap shoot 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 30 to 40 percent 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 to save 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. 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 —and to know it was done right.

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. (That's how I found out about it.) So, if your state allows it, you could potentially save a lot of money on your next car if you are 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 percent of its normal value, you will only be able to get 60 percent of its normal value when you sell it. The longer you drive the car, the smaller the penalty at the time of selling. The net result is that you save a lot when you keep it for a long time. However, if you sell your car every two or three years, your savings at the time of buying will be 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, sellers have to disclose a salvage title at the time of sale.)

Also keep in mind that 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 than 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. In fact, a fender bender will often do it.

What that means is you can save 30 to 40 percent 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 to do some repair work yourself. If you know your way around a junk yard and you're not averse toscraping your knuckles a bit, you can save even more than the 30 to 40 percent 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 to 70 percent before you make your offer. Then you add some weekend and evening sweat equity to add that value back to the car —and you know the quality of the work that's been done.

Buying a car with a salvage title is obviously not appropriate for everyone, and this post doesn't try to make that point. All I hope to do is spotlight an option you may not have considered before but which might work for you.

Tips for Buying a Salvage-Title Car

As the saying goes, there's no free lunch. In order to capture the gain of having a serviceable car at a 30 to 40 percent discount, you have to put in some time you wouldn't ordinarily spend. 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 their purchase, they don't have any incentive to stray outside the box to accommodate you. That means more work for you.

1. Negotiate. Sellers will try to slide by with a discount of, like, 15 to 20 percent on the normal price, hoping buyers won't know the appropriate discount from normal. Salvage-title vehicles is a buyer's market; be sure to pursue the maximum advantage.

2. Financing: You should 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 bank's problem is the resale value of the car, which is much less than that of a comparable car with no title problems. If you are 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.

3. Insurance: Insurance companies, for the most part, won't offer the comprehensive insurance lenders require. They will offer collision and liability coverage; but, again, expect some push-back and more time shopping around for insurance. 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 much difference in repair costs; so don't expect any price break, even though your car was a lot cheaper than a comparable “regular” car.

4. History: Before you even make an offer on a car with a salvage title, you would 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 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 businesses who sell salvage-title cars are reputable; others are not. Be sure to check with the Better Business Bureau to see if this seller has had issues.

5. Inspection: It is good practice to have a professional inspect any used car you're interested in buying. Although it may cost a hundred or two, I look at that as insurance: It's 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 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. A body shop inspection will quickly reveal if that's a problem or not.

6. 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 as well.

In Conclusion

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 we give them away. Given the success my friend had with his salvage-title car, I'm seriously going to consider going that route next time we buy. The key, I believe, is to be very careful and to 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.

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Mike in NH
Mike in NH
5 years ago

Something very important to specify about the history portion of this strategy. Often the salvage cars that look the best, even like new, are those with flood damage. Most insurers will total a car any time the water makes it to dashboard level and the reason for that is electrical/wiring. The car may look perfectly normal now but over time the wiring can corrode and become an absolute nightmare. I work for an insurance company and I would really recommend going in another direction if that is what your research into the vehicle’s history comes back with.

Anna
Anna
5 years ago

Thanks for providing a comprehensive article on an unusual topic! Very informative.

Mike
Mike
5 years ago

For every good story about salvage you will hear a bad story or just a warning to stay away from it altogether. Lets say you do all the diligence stated above, you still might get a stinker. Even though a car is smaller it can be similar to the way a house goes through an inspection and things are missed, sometimes major items. The history is probably as important as the inspection, if the front end is totaled, in a newer car its probably not worth bothering. If it is flooded, you better be prepared to replace carpets and seats,… Read more »

Marie
Marie
5 years ago
Reply to  Mike

I’ve been told by an RN who works at an assisted living facility that it pays to put the word out with them when looking for a gently used car. If you are reasonable about it, they may let you post a notice on their community bulletin board. People entering their programs are often no longer allowed or willing to drive, and the family often wants to unload extraneous belongings.

Ava
Ava
5 years ago

I drive a car with a salvage title and no one would ever know! My BF is a mechanic and fixed it like new, and I got the car at a fraction of what it would cost if I were not salvaged. I’m just happy that I had someone trustworthy to do the work for me, and someplace to go should I have any problems with the vehicle.

Kevin
Kevin
5 years ago

Just don’t forget that your insurance company may have a number of opinions on salvage titled vehicles.
Including how much it affects your premium.

William @ Drop Dead Money
William @ Drop Dead Money
5 years ago
Reply to  Kevin

Kevin, I thought so, too. But in a long conversation as part of the research to this post, my insurance broker told me insurers don’t care that much when it comes to the collision part of the coverage.

Their decision usually revolves more around whether they will insure the car or not: they generally shy away from the comprehensive coverage banks require.

When they decide to insure, the premium is not all that different. As I pointed out in an earlier post (https://www.getrichslowly.org/one-expense-you-have-control-of-in-ways-you-never-thought/) the car you have doesn’t affect your premium nearly as much as you might have thought…

El Nerdo
El Nerdo
5 years ago

Thanks William! I’ve been thinking of buying an old jeep to drive around the place here (bumpy dirt roads), but even used prices were too high. Now I know where to look! I didn’t even know these things existed. Sounds perfect for my needs.

Gordon
Gordon
5 years ago

I bought a 15 month old Ford Escort as a salvage title. It cost me $4000 and had 26,000 miles on it. The guy who sold it to me had a panel repair shop and he showed me pictures from the accident. It had been side swiped while parked and written off. But all the damage was superficial and had been repaired. I ran that car for 9 years until the wheels were falling off!

I think I got about 110,000 miles out of it. Not bad for 4k!

Golfing Girl
Golfing Girl
5 years ago

We bought a salvage title 2002 Honda Accord back in 2003. It had only 15,000 miles on it and was fully loaded. It now has 125K miles and we have only had routine maintenance done to it. The best part is we got it for only $15K and it has been paid off for 12 years. It was a great decision for us, as we are not car snobs and keep our vehicles for 10+ years. We plan to drive the Accord until the wheels fall off. It actually pained us to sell our 1995 Jeep a couple of years… Read more »

Ashley
Ashley
5 years ago

Your son going off to college in 35 years? Great point on the article itself although I know I’m not knowledgable enough about cars for it to work for me yet.

Dianecy
Dianecy
5 years ago

Caveat emptor.

Sahil Sharma
Sahil Sharma
5 years ago

I just have bought a old second hand bike online but it is in good condition and right now there is no problem at all. So in my opinion you just have to kept some important tips in your mind while buying something.

Andy@artofbeingcheap
5 years ago

I know several people who have bought their own cars back from the insurance company after the car was totaled. It was a great deal for them because they got their own car back, a check for the diminished value, and cheaper insurance. The only drawback is cosmetic damage.

Triplebreakpoint
Triplebreakpoint
5 years ago

What a great article. I’ll never ever buy a new car even if I win the lottery. I’ve bought and sold four salvage title vehicles. All were bought one year old and sold within five years, no regrets.
If you’re not a car snob it’s the only way to GO.

Anonymouse
Anonymouse
5 years ago

Another thing I’d ad is to do a google search for the VIN of the car you are buying. Many times you can find pictures of how the car looked before it was fixed, so you can determine how bad it actually was.

Be careful though, there are junkyards that will do things like re-install bumper supports and stretch out hoods to hide the extent of damage. So keep digging and find the dirtiest, worst picture you can possibly find. 🙂

Sharon
Sharon
5 years ago

I have enjoyed your article very much. I purchased a 2004 repair salvaged Honda from the people who restore salvage vehicles. I had 54,000 on it when I purchased it and have added another 91,000 and it is going strong. Was rebuilt like new, and identified as salvaged auto. I was given a picture of its wreck before restored. It is amazing for this company restores salvaged cars and I love my Honda SUV. Upon purchasing this car they gave me the salvaged title and the pix of the wreck car before its restoration. Is that mine for keeps (the… Read more »

KPat
KPat
4 years ago

We are off to look at a rebuilt Mini Cooper S tomorrow. Our first was a Dodge Ram 1500 that went to 140,000 before we replaced it. The question we asked ourselves was “would we buy a car that has been in an accident at all?” Our perspective is what is the difference between a car that was $1,000 dollars short of being salvage and the one that is $1,000 beyond the point of salvage? Just the willingness of the insurance to fix it vs. replace it. We figure, if it has been repaired well, then what’s to worry about?… Read more »

Justin
Justin
4 years ago

This is risky territory, make sure that inspection concludes the car is safe. If a hack repair job is done the vehicle may not properly protect you in the event of another collision. Salvage title cars mean that whoever did the repair did it cheaper than what a comprehensive and proper repair job like the insurance company has to pay for would be. It might look fine but it could kill you if structural damage wasn’t properly repaired. Saving $5000 is not worth a risk to you or one of your passengers lives.

Brent Carnelli
Brent Carnelli
4 years ago

Are property taxes on a salvage car lower?

Blake H
Blake H
3 years ago

Where are the best places to find and buy salvage cars?

Bobbi
Bobbi
3 years ago

I was wondering if anyone here has run into a problem like this, I went to a dealership wanting to buy a fairly cheap family car. Well the dealer pushed this car ,I guess he just wanted to be rid of thus one. I thought I got a good deal , 2001 volvo s60 ,for five thousand. An I by the way it’s a salvage title, which he said meant nothing really. So I paid for it an drive away ,on the second day it starts acting up. Would not even start so first part was $130.00. Well ok so… Read more »

Mark William
Mark William
1 year ago

I just have bought an old second-hand car online but it is in good condition and right now there is no problem at all. So, in my opinion, you just have to keep some important tips in your mind while buying something.

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