What Is a Salvage-Title Vehicle and Are They Worth Buying?

A salvage-title vehicle means that it has suffered from some form of significant damage in the past, and the insurance company has deemed it too expensive to repair and declared it a total loss. Whoever either chooses to repair the vehicle to sell it again or decides to use it for parts must apply for a salvage or "junk" title, respectively. If it's the repair route, the repairs must be completed and the car must pass a safety inspection, and then the state's motor vehicle agency issues a rebuilt salvage title to inform future owners that the title is no longer "clean" — a term often referenced in used car listings.

Salvaged vehicles can appear to be a good used car bargain — often with a price that seems too good to be true — but there are a number of factors you should be aware of before considering one. With this in mind, here are some of the reasons why a vehicle can be given a salvage title, the pros and cons of buying one, and what issues may crop up as a potential owner.

A salvage title's meaning and how it works

After a vehicle has been involved in a major incident such as an accident, flood or theft, the insurance company will examine it to determine if it is economically feasible to repair the vehicle. If the damage exceeds the threshold the state or insurance company sets for totaling a car — anywhere between 60% and 100% of the car's value — the insurer will declare it a total loss. If the insurance company or lienholder takes possession of the vehicle, it will usually sell the car to an auction house, repair facility or a parts dismantler. If the vehicle is repairable, the insurance company must apply for a salvage title or salvage certificate. This certificate means that the car cannot be driven, sold or registered in its current condition.

If the car is damaged beyond repair, the title holder must apply for a junk or non-repairable vehicle certificate. This acknowledges that the vehicle is no longer roadworthy and can only be used for parts or scrap metal.

If an owner was not issued a settlement, either from lack of insurance or a desire to keep the car, it is the owner's responsibility to apply for the salvage or junk certificate.

What is a rebuilt salvage title?

It's important to note that while the term "salvage title" is commonly used when shopping for a used car, that is not the title that makes the vehicle legal to be registered again. This is where the "rebuilt title" comes into play.

In order for a repair facility to get the vehicle registered and back on the road, the vehicle will need to pass the state's safety inspection, after which the department of motor vehicles will issue a new branded title. The exact wording of this new title can vary by state, but some common labels include rebuilt title, rebuilt salvage, restored title, previously salvaged title and reconstructed title.

Different kinds of damage

There are a number of reasons why a vehicle might get a salvage title, including:

• Flood damage: Flood-damaged cars sometimes get a salvage title. Some states will specifically call out flood damage on a car's title, but other states merely use the term "salvage."

• Hail damage: As with flood cars, the titles of vehicles that are damaged by hail can also get a salvage title if the state does not have a specific "hail damage" designation on the document.

• Theft recovery: After a vehicle has been stolen and is missing for a certain period of time, the insurance company will pay off the vehicle. If the vehicle is eventually found, the insurance company is free to sell it to a salvager, which will replace any missing parts. Some states will then issue a salvage title for the car.

• Vandalism: If someone spray-painted or overturned a vehicle and caused enough damage, the car could get a salvage title. No states, however, specify vandalism in the title — just "salvage."

• Non-repairable: A severely damaged and non-operable vehicle with no resale value other than for parts can get a "non-repairable" designation, which some states call a "junk title." In these extreme cases, the state won't allow the vehicle to be repaired and it must either be sold to a scrap yard or destroyed. "Non-repairable" isn't a salvage title per se, but it is important to be aware of the term in case you come across a vehicle that's been labeled this way.

Should you buy a salvage-title car?

It depends on how comfortable you are with buying a car that has a checkered past. On the one hand, salvage-title vehicles can be an opportunity if you're on a budget or need a second vehicle. Depending on the vehicle, a salvage-title car can sell for about 20% to 40% less than the same vehicle that has a clean title, said Richard Arca, director of vehicle valuations and analytics for Edmunds. He added that the markdown of a salvage-title vehicle is greater when the market demand for the vehicle is low.

On the other hand, some salvage-title vehicles can be more prone to mechanical problems and have reduced resale value. Consumers can do these three things to help minimize the risks of buying a car that will have any issues:

1. Have the vehicle inspected: This is one of the most important things to do if you're considering the purchase of a car with a salvage title. Bring a mechanic with you for an inspection. You might also arrange to take the car to a body shop. A car professional will have a better idea about whether the repairs were done correctly and can spot any red flags, such as frame damage or parts that still need repairing.

2. Purchase the vehicle from a reputable repairer: Search for online reviews of the facility that's selling the vehicle. If it's one that's known for making quality repairs, buying a salvage-title car there may be less risky than purchasing from someone without a track record.

3. Ask for the original repair records: The best way to determine how extensively the car was damaged is to look at the original repair records. Doing so will show you what parts were replaced and how serious the accident was — or if there was an accident at all. Maybe the damage occurred in some other way.

4. Get a vehicle history report: A good way to check whether a vehicle has been salvaged or not is to run a vehicle history report. A report can shed light on when and where the accident occurred. Vehicle history reports are also a good way to verify whether a car seller's claim of a "clean title" is accurate or not.

Three more hurdles: Financing, insurance and resale

Salvage-title cars also raise issues when it comes to getting a car loan, getting car insurance, and reselling the car.

1. You might not be able to get a car loan: Banks and credit unions shy away from car loans on salvage-title vehicles. They worry that cars that suffered enough damage to be declared a total loss might have weakened structural integrity and might not make it through another accident. Another concern is that, down the line, the cars might need a major repair that the borrower wouldn't be able to pay for, leading to a higher risk of repossession. Banks only want to provide money for vehicles that will last the length of their loans, and salvage vehicles don't have a great reputation for longevity. Banks are a little more forgiving when it comes to hail damage, which is often more of a cosmetic issue than a mechanical one, but you still might not get all the money you're looking for. To avoid being denied a car loan, you might be better off applying for a personal loan.

2. You'll have to work harder to get car insurance: You will probably be able to get the liability insurance that's mandated in most states for a salvage-title car that has been rebuilt or repaired and inspected, said Lynne McChristian, a spokesperson for the Insurance Information Institute. Because it's a salvage-title car, it's riskier to insure, and you might have to pay more than you would for a car with a clean title. "Keep shopping around," she advised. "It's a competitive market." For liability insurance, the rate is likely to be more based on your driving record than the car's history.

Getting comprehensive and collision coverage is likely to be more difficult, she said. That's because an insurance company can't be sure the vehicle is up to the same safety standards as a car that's never been declared a total loss. "It could be a claim waiting to happen," McChristian said.

3. You will have fewer options when it comes to trade-in or resale. "Most franchise dealers will not take a salvage-title vehicle as a trade-in," said Arca. "Your main options are selling it to a private party or an independent dealership — and they won't give you very much."

Determining the value of the vehicle will also be a challenge. Most sites that offer car appraisals, including Edmunds, assume a car has a clean title, no matter what condition level you select. "Even a vehicle in 'rough' condition can still have a clean title," Arca said.

Since you will most likely be selling the vehicle to a private party, our advice is to use the price you paid for the salvage-title car as a starting point in your sale negotiations. If you've driven the vehicle for a few years, deduct a couple of thousand dollars. Test the market with a price higher than what you have in mind and work your way down until you get the offers you're looking for.

Finally, don't hide the fact that your vehicle has a salvage title. If you do, it's fraud. The buyer will find out eventually when you hand over the title, or if he or she obtains a vehicle history report. Honesty is the best policy when it comes to cars with a colorful past.