Salvage title vehicles can be financed, but the process likely will be more challenging than getting a loan on a car with a clean title. This is because of the risks associated with cars that have suffered extensive damage. Big banks typically avoid financing salvage title vehicles. A bank or credit union willing to finance the purchase will probably require a collision or comprehensive insurance policy, which may present a second challenge.
Find a Bank
Large banks generally avoid lending on salvage title vehicles, so start your search with smaller banks and credit unions. These institutions, according to Fitch Ratings, have broadened their consumer lending practices to compete with large banks. You also can search for a loan with specialty lenders that provide financing for automobiles with unique circumstances. While some specialty lenders may only loan on classic cars, others may consider financing salvage title vehicles on a case-by-case basis. Due to the elevated risk profile of salvage title vehicles, a loan that gets approved likely will carry a higher interest rate.
Get a Collision or Comprehensive Insurance Policy
If you are pre-approved for a loan, final approval normally will be contingent on getting a collision or comprehensive insurance policy. Because of insurers’ reluctance to pay for repairs on vehicles that have already been written off for extensive damage, most policies are written as liability only, and full coverage will be harder to get. If you already have auto or homeowner’s insurance, start your search by calling your agent to see if the company offers comprehensive insurance for salvage vehicles. Big auto insurance companies that can spread their risks over a wide range of insured vehicles also may consider writing a full coverage policy. These companies include Progressive, Geico and Allstate.
Support your applications to prospective lenders and insurers with comprehensive documentation of the damage and the repairs that were done on the vehicle. This can make the difference in getting approved or not, and may lead to a slightly lower interest rate and better policy terms. Necessary paperwork includes the original estimate of damage, receipts for repairs prior to the state inspection and a copy of the state inspector’s evaluation. If additional repairs were done after the inspection, include those estimates and receipts as well. These show that you are continuing to upgrade the vehicle, which may alleviate some of the safety concerns of the prospective lenders and insurers.
Consider an Indirect Loan
If you are approved by a lender and an insurance company but the interest rate and the cost of a full coverage policy are too high, you may want to consider an indirect loan. An example of this alternative would be withdrawing funds from a home equity line of credit to pay for the car, and then paying back the money borrowed from the line of credit over time. This option provides a cost-effective solution with a lower interest rate, the option to buy a lower cost liability policy, and the possibility of being able to write off the interest charges.
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