It can be difficult to get an auto loan for a vehicle with a salvage title, even if the vehicle has passed all state-mandated inspections. The reason is simple: most lenders do not feel that they can recoup their loan investment in the event that you default on the loan. The reason is that cars with salvage or rebuilt titles are harder to sell at auction, and they are often worth up to 50% less than an equivalent vehicle with a clean title.
Buying a Car with a Salvage Title: a Game Plan
If the deal is too good to pass up, you will want to start off by having a trained mechanic look the vehicle over. Yes, it may have passed the inspection process to get the title it has, but there may still be something amiss. This will typically cost you about $100, but it is well worth every penny.
If the vehicle still passes muster and you want to move on to the financing phase, you can start with an online specialty lender. These are lenders who recognize that the one-size-fits-all mentality of large lending institutions have left many consumers in the dark, so they offer more flexible loan options. While you may be able to get the auto loan that you are seeking, it will come at a price. The interest rate will be higher than it would be from a traditional bank or credit union, the repayment term will be shorter, and you will be asked to offer a cash down payment of at least twenty percent of the total purchase price.
In the event that you cannot find specialty financing, you can try to finance the money you need by offering a different asset as collateral. Perhaps another car, or, as a last resort, the equity in your home. As a bonus, using a home equity loan (HELOC) allows the interest to be tax deductible, though there are a number of disadvantages to this. A final option may be peer to peer loans.
While you are considering your options, you need to think ahead. You will have as much difficulty selling this car as you are finding financing. The next buyer is going to run into the same aggravation that you are, so you will have to hope for a buyer with cash in hand. Secondly, is it in your best interest to take on a loan against another asset just to buy this car? With these things in mind, have you looked into insurance coverage yet? Some insurers will not cover a vehicle that has had a salvage title, while others will charge you a higher premium for their coverage.