Risks, upsides of salvage-title vehicles

If the term “salvage title” stops you in your tracks, you’re not off base.

Salvage title cars attract some buyers because they’re priced significantly below market. They might seem like a bargain, but ultimately they have a lot of risks. We suggest getting a safer deal by buying a cheap used vehicle and being preapproved for financing.

Salvage title cars might represent opportunities for a select group of buyers, but even then, the cars should be viewed with caution — and most buyers should avoid them altogether. Here’s everything you need to know.

A vehicle receives a salvage title when it’s damaged so severely the insurance company declares it a total loss. Depending on your state’s laws, this occurs when the car’s repairs would cost 50 percent to 90 percent of its pre-crash value.

“The reasons for the salvage title vary. It could be the result of flood damage — which, even though cosmetically repaired, could lead to mold issues later — a repair after being totaled in an accident, hail damage, smoke damage from a fire. … The reasons are many,” says Matt DeLorenzo, managing editor at Kelley Blue Book.

Before putting the totaled car back on the market, the insurance company takes ownership, issues a salvage title and sells it to a repair facility. Even after being rebuilt, the car will retain its salvage title, which substantially lowers its market value — by 20 percent to 40 percent, according to Kelley Blue Book. But the company emphasizes that it doesn’t assign value to any salvage title vehicles because it assumes the vehicles are in poor condition.

The risks

There are many drawbacks to buying a salvage title car. The biggest is that you might not know the extent of the damage that caused it to be declared a total loss. There are also other factors to consider:

Safety: There are reports of salvage car rebuilders using money-saving tactics that cut safety corners, such as installing faulty transmissions or seat belts. Fraud: Many people selling salvage title cars claim the damage was minor and cosmetic, but it can be hard to know who’s telling the truth. And there’s little the buyer can do if the car turns out to be in poor condition. Difficulty insuring or financing: Most car insurance companies offer only limited coverage for salvage title cars — or refuse to cover them at all — since it’s so hard to assign them accurate values. Banks rarely provide financing for them.

No resale value: Dealerships almost never accept salvage vehicles as tradeins, and private sales can be just as difficult.

The upsides

Saving money: Arguably, the main draw of buying a salvage title car is that such cars are priced significantly below market, typically 20 percent to 40 percent less than the same car with a clean title. Finding a diamond in the rough: There are times when a salvage title car is only slightly damaged but still being sold for a low price. A hailstorm might damage the body but leave the engine and interior untouched. Older model vehicles might have lost market value to the point that they’re totaled even if they require only small repairs. Cars recovered after being stolen might receive a salvage title without ever having been in an accident.

Getting a source for parts: Some people buy salvage title cars to use as a “donor car” for parts. Others enjoy fixing up the salvage title car themselves.

Who are they good for?

Given the pros and cons of buying a salvage title car, the pool of ideal buyers is small. It includes buyers who:

» Have enough mechanical knowledge to inspect the car and possibly fix repair issues.

» Know the seller and have complete knowledge of what caused the salvage title.

» Plan to keep the car so long it fully depreciates, making resale a non-issue.

» Need a second car that’s rarely used, perhaps for a vacation home.

» Can’t get a loan and have to pay cash for a car. Buying the right salvage title car will allow them to drive more car for less money.