If your car is badly damaged in an accident, a natural disaster, or under other circumstances, your insurance company may decide it isn't worth repairing and declare it a total loss. At that point, either you or the insurer will need to get a salvage title for the car, depending on who is going to take possession of it. Here is how the salvage title process works.
- A salvage title is issued when a vehicle is damaged and considered a total loss by the insurance company.
- The vehicle owner or the insurance company can apply for a salvage title.
- A separate rebuilt/restored vehicle title may be required before a salvaged vehicle can return to the road.
- These laws can vary depending on the state in which you live.
What Is a Salvage Title?
A car title is a legal document of who owns a vehicle. If you own a car outright, with no loans against it, then you likely have a car title in your name.
A salvage title not only indicates who owns the vehicle but also that it has been damaged beyond its fair market value and declared a total loss by an insurance company.
What constitutes a total loss depends on the insurance laws in your state. For example, in Nevada, a vehicle is considered a total loss if the damage exceeds 65% of the fair market value. Nevada also classifies flood-damaged and unrepairable vehicles that are only suitable for scrap as salvage vehicles. In New York, on the other hand, the damage must exceed 75% of the car's fair market value.
Salvage titles tell potential buyers what type of damage the vehicle has incurred. That could be flood damage, fire damage, or damage related to an auto accident. The salvage title process can also ensure that a vehicle has not been rebuilt or restored with stolen or defective parts.
How Does a Salvage Title Work?
When a car has been declared a total loss, either its owner or the insurance company can apply for a salvage title. Which party does so depends on who plans to retain possession of the vehicle.
If the owner chooses to keep a totaled vehicle or didn't have insurance coverage, they would be responsible for applying for a salvage title. If the insurance company repossesses a damaged vehicle after declaring it a loss, the insurer would apply for the salvage title.
Salvage titles can be obtained through the state department of motor vehicles. Though the process varies from state to state, it typically involves filling out an application, paying any required fees, and submitting the car to a salvage vehicle examination. The examination will assess the extent of the damages and the vehicle's overall condition.
A salvage inspection is not the same as a regular safety inspection or emissions inspection. During the inspection, the examiner may do all of the following:
- Verify that the vehicle identification number (VIN) of the car matches the number shown on the application.
- Check the odometer to make sure the mileage matches the application.
- Compare the vehicle's condition to what's stated on the application.
- Verify that the vehicle's parts haven't been removed, defaced, destroyed, or otherwise tampered with prior to the inspection, beyond the damage that has been reported.
If you go in for a salvage inspection, you may need to bring certain documents with you, including your application for the salvage title, a receipt showing that you paid the appropriate fee, a copy of your insurance company's damage or appraisal report, and a bill of sale for any repair costs or parts you purchased.
How to Insure a Car with a Salvage Title
If you have a car with a salvage title that you'd like to fix up and return to the road, you'll need to consider your options for insuring it. Again, the rules can vary by state and from insurer to insurer.
Some insurance companies may be willing to sell you basic liability coverage for a salvage vehicle that's been rebuilt or restored, while others may not. Depending on the state, you may need to obtain a separate rebuilt or restored vehicle title that certifies the vehicle's safety before you can get insurance and drive it on the roads.
If you're shopping for insurance, take time to compare companies. Look at the premiums they charge for at least the minimum level of coverage that's required in your state. Also think about whether paying extra for collision and comprehensive coverage is worth it, based on the vehicle's estimated value. (Though liability coverage is mandatory in virtually every state, collision and comprehensive, which pay for damage to your car, are optional.)
If you're considering buying a salvage or rebuilt vehicle, plan to have it checked out by a trusted mechanic to help spot any potential issues before money changes hands.
Should You Buy a Car with a Salvage Title?
If you're shopping for a low-priced vehicle, you might consider a car with a salvage title or rebuilt/restored title. But there are pros and cons to doing so.
On the pro side, for example, it may be fairly easy to find a salvaged vehicle for far less than you'd have to pay for a new or more gently used one. So you might consider a salvage title vehicle if you need a car now but don't have a lot to spend.
There are some disadvantages, however. For one thing, you could find it difficult to get a car loan for a salvage vehicle. Lenders may be reluctant to finance a vehicle that's been in an accident or is flood-damaged. If you are able to obtain a loan, it may come with a steep interest rate or a larger down payment requirement. And again, getting insurance on this type of vehicle can be tricky.