What is a salvage car and why is buying one essentially a gamble? – Jalopnik

In the pre-pandemic days of early 2020, the average used car sold for about $20,500. Fast forward six years, and the number is closer to $27,000 per AutoGurus. That 25% increase has led to used car buyers looking for bargains, including cars with a salvage title. The appeal is obvious. A title mark can result in a 20% to 40% lower sales value than a clean title equivalent. Plus, many junk cars can look perfect on the outside. Even car dealers are starting to get in on the action.

But there’s a reason why these vehicles have salvage status. Insurance companies have declared them total losses due to accidents, floods, theft or other damage. If you buy one of these cars, you’ll be dealing with a questionable history. It’s also worth noting that salvage titles vary by state and the type of damage or incident. There is also a rebuilt salvage title indicating that the vehicle has been restored and is legal to drive on public roads.

Either way, the underlying problem with any salvage vehicle is uncertainty. You are betting that the problem can be identified and repaired, or that the damage is completely repaired. This risk can affect safety, drivability and resale value. You may also experience problems financing or insuring the car.

A salvage title is a designation issued by a state motor vehicle agency that a car has been damaged to the point where repairs exceed a certain threshold related to the value of the vehicle. That benchmark, usually around 75%, is set by the state. In practice, something happens to the car (such as an accident) and the owner files an insurance claim. The insurance company determines that the repairs exceed that threshold and declares the vehicle a total loss. The company then pays the owner (or lender) for the car and takes possession. A salvage title is issued by the DMV and the vehicle is often sold at auction (such as Copart or IAA) to help the insurer recoup some of its losses.

Each state handles the salvage process differently, so it is not unusual for the precise terminology to vary. While some DMVs use the term “Salvage,” others are more detailed about the cause behind the salvage designation. For example, Florida uses “Salvage Stolen.” Not surprisingly, Florida (and other states) also has a “Flood Damage” title mark that does not fall under the salvage flag, but requires equal caution. Some states use a “Total” category. Again, not a salvage rating, but just as serious. There is also a separate title category for rebuilt vehicles. Here is a list of rebuilt and salvaged titles.

There is no federal law requiring states to use the same terminology. However, the American Association of Motor Vehicle Administrators (AAMVA) publishes a list of standardized title mark codes as a guideline. These codes are also used by the National Motor Vehicle Title Information System (NMVTIS). NMVTIS is a federal clearinghouse operated by the Department of Justice that collects title information at the state level. When you run a Carfax report, the title mark details are pulled from the NMVTIS database.

It is not so difficult to come across a broken car. A LexisNexis Risk Solutions The report shows that by 2022, 27% of vehicles involved in crashes with a collision claim were declared totaled. Accurate statistics on scrap cars are difficult to determine, but older data from the National Recovery Vehicle Reporting Program (NSVRP) indicates that 3.5 million vehicles find their way to salvage auctions every year (and some find new life in overseas markets). While many of those cars are sold for parts, others end up back in the hands of consumers. Copart, IAA, and other auctions are open to private buyers in some states (or buyers can go through a broker). Some have been rebuilt, some are sold as is or with minor repairs. A search on Facebook Marketplace shows no shortage of options.

The trade-off with a car with a salvage title is not knowing the full extent of the damage. A clean-looking vehicle with a salvage title may have problems with the drivetrain or electrical components. An unrepaired car may have hidden damage that is only discovered halfway through the restoration process. Even though rebuilt salvage cars usually have to go through a specialized state inspection process before they are retitled and become street legal, there is still a possibility that some problems will be overlooked or not repaired properly.

Then there are real-world considerations. It is common for banks to avoid financing a salvage vehicle because determining the value of the collateral can be difficult. Additionally, some insurance companies do not cover these cars or only provide basic liability coverage (not comprehensive or collision coverage). Finally, the upfront discount reduces the resale value later – not everyone wants to buy a car with a salvage title.