Can I Finance a Car with a Rebuilt Title?by Scott KrohnUpdated July 17, 2023
Before your are issued a rebuilt title, your car's title will be branded with the term "salvage" which indicates the vehicle has been damaged to to the extant that the insurance company declares it a total loss. In most states, the title will be changed to "rebuilt" if an inspection by a state official deems that repairs on the car have made it drivable again. While your vehicle may be street legal, the extensive damage and uncertainties about the quality of the repairs leaves the majority of larger lenders unwilling to provide financing.
Going from a Salvage to a Rebuilt Title
The change from a salvage to rebuilt title makes it legal for the car to be driven on public streets, but the inspection on which this change is based often doesn't focus on the safety of the vehicle. In New York, for example, inspections conducted by state officials do not check for safety or insurance-related issues and instead certify that damaged components have been repaired and that the replacement parts haven't been stolen. The low standards required to pass these inspections are not lost on large lenders that, by financing the purchase of an automobile, would hold an interest in the car until the loan is paid off.
While financing from large banks will probably not be available, there may be other institutions such as smaller banks and credit unions that are willing to lend money for the purchase of a vehicle with a rebuilt title. Smaller lenders are sometimes more aggressive than the larger enterprises in their financing decisions or may be trying to develop niche business areas such as specialty auto lending. Either way, these institutions present a much better chance of getting financing for your rebuilt vehicle. Because of the perceived risk, however, the interest rate on your loan may be significantly higher than the rate on a car with a clean title.
Insuring the Vehicle
Insuring a rebuilt title vehicle to the extent required to close the loan may prove challenging as well. The problem is that most banks require comprehensive coverage for cars that are financed, but many insurers are wary about approving policies on vehicles when the true value is unknown. For the best chance to get the type of policy needed to meet financing requirements, start your comparison shopping before buying a rebuilt car by calling insurance companies, provide the vehicle identification number, and ask about the types of policies that are available. Supporting your insurance applications with documentation of damage and subsequent repairs, as well as pictures of the work, can help to open a policy that meets the requirements of the lender.
Perhaps the best way to avoid the hassle, higher interest rates and potentially higher costs for full coverage insurance policies related to rebuilt title vehicles is to pay cash for the vehicle and take out another type of loan. For example, if you have equity in your property, consider taking out a home equity line of credit to replace the cash spent on the vehicle. This somewhat unconventional solution may reward you with a lower interest rate, the flexibility to choose the level of insurance coverage on the vehicle and the possibility of being able to write off the interest paid on the loan.
In the automotive world, equity is the value of your car minus any outstanding loan or lease payments.
After working for 21 years as a licensed adviser specializing in corporate and private finance, Scott Krohn began his writing career in 2008 covering a variety of topics including business, personal finance, health, and IT. He graduated from Cal State University, Long Beach with Bachelor of Arts degree.