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You’re shopping for a used car and find one that looks great, has low mileage, yet is selling way below fair market value. Is there a catch? Possibly. You may discover that the car has a salvage title that’s dragging down the price.

A salvage title means that the car has undergone extensive damage and was deemed a total loss at some point. While that doesn’t mean you should completely rule out the vehicle, it does mean you should proceed with caution and do some research before you cut a deal.

If you’re thinking about buying (or selling) a car with a salvage title, here are some tips and guidelines to keep in mind, including how to value a salvage title car and challenges you may face when you own a salvage car.

What Is a Salvage Title?

Your car title is the legal document that proves you’re the owner of the car. Brand new cars start with what is known as a “clean” title. Over time, however, that can change. If the car is in an accident or otherwise sustains damage (perhaps due to a flood, fire, or hurricane) that renders it undriveable, it may receive a salvage title.

A salvage title means the insurance company has deemed the car to be a “total loss,” meaning that it will cost close to or more money to repair than what the car is worth. The value percentage that triggers a total loss varies by state and insurer, but it’s typically between 70% and 90% of the car’s resale value.

Once a car is declared a loss, the insurer will generally take possession of the vehicle and issue a salvage certificate. At that point, the car is not legal to drive and cannot be registered.

Sometimes, in an effort to recoup some of the money they lost, the insurer will sell the car to an auto repair company, where it may get repaired or rebuilt. If the repaired vehicle passes inspection and is declared safe to drive, it can then receive a “rebuilt” title. You may purchase rebuilt title cars and register them in your name.

You may see both salvage and rebuilt titles referred to as “branded” titles. A branded title indicates there’s something unusual about the title.

Keep in mind that a salvage title is different from a lemon car, which is a car that has a significant defect that the manufacturer can’t fix within a reasonable amount of time.

Recommended: Getting a Loan for Rebuilt Car Titles

How Can You Check if Your Car Has a Salvage Title?

Sellers and dealerships are required by law to disclose a vehicle’s salvage title. However, this law isn’t easy to enforce, particularly if the car crosses state lines before going on the market. As a result, it’s always wise to do some sleuthing about a car’s history before you consider buying it.

Salvage titles usually display the word “salvage” across the title to distinguish them from a regular title. But if you don’t have access to the title, you can learn about the car’s history by visiting the National Motor Vehicle Title Information System website, VehicleHistory.gov, as well as other vehicle information websites, like Carfax.

A quick visual inspection of the car can also provide clues. There are a number of red flags that can suggest a vehicle has a salvage history, including:

•   Signs of a major repair to the inner fender structures

•   Mud, mold, or rust under the carpet in the trunk

•   Vehicle identification number (VIN) plate attached with materials other than rivets

•   Airbag system light is always on

•   National Highway Traffic Safety Administration (NHTSA) labels, which usually appear on the doors, inside hood, tailgate, and hatchback are missing

Recommended: 9 Tips for Buying a Used Car

Can You Get a Salvage Title Removed?

Once a vehicle’s title has been branded as salvage, it will generally never go back to the way it was titled before. In most states, however, a car with a salvage title can be rebranded as a “rebuilt title” (sometimes called “reconditioned” or “assembled”).

To get the title change, you will need to repair the vehicle and submit it to the Department of Motor Vehicles (DMV) for inspection. If it passes, the DMV will rebrand the title as rebuilt.

People, including dealers and car buyers who know about car titles, however, will be aware that a rebuilt title means the car was previously branded salvage. So, technically, the salvage branding can never be fully erased.

Recommended: Getting a Car Loan After Bankruptcy

Determining the Value of a Car With a Salvage Title

While there is no standard formula that can give you the value of a salvaged car, it’s fairly simple to get a ballpark range of its market value.

The first step is to establish the value of the car had it not been damaged. You can do this by looking it up on Kelley Blue Book, Edmunds, or the National Automobile Dealers or Association (NADA).

These websites are easy to use and allow you to look up a car’s value based on its year, make, model, trim, mileage, and condition. In this case, you can simply use “good” condition to get a starting market value for your salvage calculation.

Once you get the car’s market value in good condition, you’ll want to knock it down because of its salvage condition. Generally, if a car has not been repaired after a major accident, it will only be worth 10% to 50% of an equivalent used car’s value. If the car has been repaired and has a rebuilt title, it will likely receive about 70% of its undamaged value.

Recommended: How to Spot Good Car Value Estimates vs Bad Car Price Estimates

Factors That Can Influence the Value of a Car With a Salvage Title

Salvage car values vary widely due to a range of factors. These include:

•   Make and model: Some car manufacturers have better reputations for durability than others, and some models are more popular than others, both of which can drive up price. This can also vary based on location.

•   Mileage: More mileage signals more overall wear and tear. Thus, a high-mileage vehicle is likely to sell for less than an identical car with half as many miles on the odometer.

•   Reason for the salvage title: This can have a significant impact on the car’s value. A car that’s been in a flood, for example, will generally have less value than a car that’s had body damage due to an accident. A car can also get a salvage title if it was stolen and not recovered for many weeks or months, since the insurer considered it a total loss. This type of salvage car will typically have a much higher value than one that was totaled in an accident.

Challenges of Cars With Salvage Titles

Salvage title cars come with some risks and unknowns. Here are some you may want to consider:

Safety of the Vehicle

It can be hard to understand how much damage you’re dealing with when you consider a car with a salvage title. Even if the car has been repaired, it may have issues that were never properly addressed. And, if the rebuilder cut corners, it could have structural or alignment issues that could potentially make it less safe to drive.

Financing the Vehicle

Lenders tend to avoid the extra risk associated with salvage title cars, so it may not be easy to get a car loan to buy one, especially if the vehicle hasn’t been repaired yet. If you do find a lender, you may need excellent credit, and even then, interest rates may be high.

Insuring the Vehicle

Salvage title vehicles can be difficult to insure, even when they’re rebuilt. Insurance companies may not offer insurance for rebuilt cars at all, and if they do, it will likely be limited. In many cases, they may only offer liability coverage, which will cover damage done by you to another property or person, but won’t cover your vehicle or injuries to you or your passengers.

Selling the Vehicle

If you buy a vehicle that has a salvage title, you’ll generally need to repair it and get it inspected before you can resell it. Even then, you may have trouble selling the car, since buyers will often be suspicious of a car that has a rebuilt title.

Recommended: Selling a Car With a Lien

Can You Refinance a Car With a Salvage Title?

If you can find an auto loan for a salvage title car that has been rebuilt and deemed road-worthy, it may be possible to refinance that loan in the future. When you refinance a loan, you essentially take out a new loan, ideally with better rates and/or terms, and use it to pay off your original loan. You then only make payments on your new loan.

Refinancing might make sense if your initial salvage or rebuilt car loan came with a high interest rate, the monthly payments have become unmanageable, and/or you’ve built your credit score (qualifying you for a lower interest rate). However, it may be just as difficult, if not more so, to find a lender willing to offer a refinance loan than it was to find financing for the salvage vehicle in the first place.

Recommended: Can You Refinance a Car Loan With the Same Lender?

The Takeaway

A car with a salvage title can be significantly cheaper than a used car with a clean title. While it may be tempting to buy one, there are some precautionary measures you may want to take before you seal the deal. These include calculating the car’s value, researching its history, and considering the challenges that can come hand-in-hand with a salvage vehicle, such as potential difficulty with financing, insuring, and reselling it in the future.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What are salvage titles on cars?

A salvage title is given to a car that has sustained enough damage (due to an accident or natural disaster like a flood) that it is considered a total loss by the insurance company. A car with a salvage title can’t be legally driven on public roads. If the car gets repaired and passes a state inspection, it can get a rebuilt title. With a rebuilt title, you can register and drive the car.

Is the value of a car with a salvage title low?

Generally, yes. Depending on the reason for the salvage title, cars with salvage titles can be worth anywhere from 50% to 90% less than an equivalent used car’s value.

How can you determine your car value with a salvage title?

You’ll first want to look up what the fair market value for the car would be if it was undamaged using a website like Kelley Blue Book or Edmund’s. Depending on the reason for the salvage title, you’ll then need to discount that price by 50% to 90%. If the car has been repaired, you would only discount the price by around 30%.

Photo credit: iStock/fotostorm

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-043

A car’s Vehicle Identification Number, or VIN, is a code consisting of numbers and letters that’s given to a car by the manufacturer. The VIN is analogous to a fingerprint. It is a unique tag that serves to identify a specific vehicle — no two automobiles have the same VIN.

Here’s a closer look at what a VIN is, where to find it, and why it’s a useful piece of information to have.
Key Points

What Does VIN Stand for?

VIN stands for Vehicle Identification Number. It typically comprises 17 characters printed in a single line. Vehicles built before 1981, when the VIN was standardized, may have fewer than 17 characters. A car’s VIN is not generated randomly. Instead, it’s broken down into sets of characters that provide useful information about the vehicle.

VIN Decoded

The first three digits of a VIN comprise the World Manufacturer Identifier, which tells you where a car was made.

•   The first character tells you what country the car is from, specifically where the automobile was finished.

•   The second character represents the region where the car was produced and the manufacturer.

•   Together with the first and second characters, the third character tells you either the manufacturing division or type of vehicle.

Characters four through nine give you vehicle description information.

•   The fourth through eighth characters can tell you the vehicle model, body type, engine type, transmission type, and restraint system.

•   The ninth character serves as a fraud check. It’s assigned to the vehicle by the U.S. Department of Transportation to help detect fake or invalid VINs.

The rest of the characters in the VIN make up a portion known as the Vehicle Identifier Section.

•   The 10th character lets you know the vehicle’s model year; however, it does not necessarily indicate the year it was manufactured. It is common for manufacturers to start building a model year in the second half of the previous year. This system only applies to cars made after 1981. Before then, this VIN format had not yet been standardized.

•   The 11th character tells you the factory at which a car was manufactured.

•   The final characters are the unique serial code assigned to a car at the factory.

It’s interesting to know what each set of characters stands for, but practically speaking, you can put a VIN in an online VIN decoder to help you understand the information it contains. VIN decoders typically only work for cars made after 1981.

Recommended: How Soon Can You Refinance a Car After Purchase?

Where Is the VIN on a Car?

Now that you know what a VIN is, it’s important to know where to find it. There are a few places on a vehicle where a VIN might be located. Barring those, you may be able to look it up in a vehicle’s registration or insurance documents.

Dashboard

The first place to check for a VIN is on the driver’s side dashboard of the vehicle, specifically where the dashboard meets the windshield. It can be tricky to get a good look from inside the vehicle, so if you’re having trouble, step outside the car. It should be visible as you look through the windshield.

Driver’s Side Door

Another place to check is on the door jamb of the driver’s side door. A sticker with the VIN is often located on the post where the door latches when it is closed. The sticker often has a barcode on it with the VIN right underneath. The barcode carries the same information as the VIN.

Engine’s Firewall

You may be able to find the VIN on a car engine firewall, which separates the engine compartment from the passenger compartment. It could also be on other parts of the car, such as the transmission. Manufacturers often include VINs in multiple locations as a security practice, because cars that are stolen may be broken up for parts.

In some cases, on used cars, the VIN on certain parts won’t match the VINs located on the rest of the vehicle. If this is the case, it doesn’t always mean there’s something suspicious going on. The parts could have been replaced legitimately, and it could be something that’s documented in the car’s history. In any case, it’s certainly something worth looking into.

Other Ways to Find a Vehicle’s VIN

For whatever reason, if you’re having trouble finding the VIN on the body of a vehicle, there are sources to which you can turn to aid in your search.

Insurance Card/Insurance Policy

VINs are a required piece of information when insuring a vehicle. If a car is insured, the number should appear on paperwork for the insurance policy as well as on the insurance card for the vehicle.

Vehicle Title and Registration

A VIN is also required for the title and registration of the vehicle. In fact, it’s a crucial piece of information as this is how the Department of Motor Vehicles can identify and register specific cars. If you can’t find a VIN on the car or in an insurance policy, check out these documents.

Recommended: Car Loan With a 650 Credit Score

Why Is Your Vehicle VIN Important?

You’ll need a VIN during the registering and insurance process. But the number can also be useful to know in a variety of other scenarios.

Auto Loan Refinancing

If you decide to refinance your auto loan, you’ll typically be asked for a slew of information, ranging from a copy of your driver’s license and your vehicle registration to proof of income. Among these car loan requirements, you’ll also be asked for your VIN. This allows the insurance company to look up information about your car that can help them determine its value.

A car’s value can play a big part in whether an insurance provider will offer a refinance loan. For example, if the car is worth less than what you still owe on your previous loan, a lender may be wary of offering a new loan, or they may offer a loan with higher car loan interest rates.

Stolen Car

When a car is stolen, the owner will typically provide the local police department with information that includes the car’s make and model, license plate number, color, and VIN. If you’re in the market for a used vehicle, you can run a check online on the VIN of cars you’re considering to see if that vehicle has been stolen. If the car has been stolen, remove yourself from the transaction and notify the police.

Buy or Sell a Used Car

If you’re selling or buying a used car, it’s important to have the VIN handy as it provides critical information about the make and model of a vehicle, when it was made, and what features it carries.

Recalls on a Car

A car’s VIN can also be used to look up recalls by the manufacturer if a part has been deemed unsafe and needs to be replaced at a dealership. The car’s owner can be notified in this way.

Recommended: Guide to Car Loan Modification

The Takeaway

A car’s VIN is not only a handy way to learn information about a vehicle’s make and model, but also a critical point of information to provide in circumstances like refinancing your auto loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is the VIN?

The VIN, or Vehicle Identification Number, encodes information about a vehicle, including where it was manufactured, its make, model, year, and information about certain components.

Where is the VIN on a car?

The VIN on a car may be located in a few different locations, including on the driver’s side dashboard near the windshield, on the door jamb of the driver’s side door, on the engine firewall, or on other vehicle components, such as the transmission.

How long is a car VIN?

The VIN of cars built after 1981 are a standardized 17 characters long.

Photo credit: iStock/EyeEm Mobile GmbH

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-042

Cars start to lose their value as soon as they’re driven off the lot. This is due to vehicle depreciation, which is the rate at which a car’s value declines over time.

All cars depreciate. However, some lose their value at a faster rate than others. How quickly a car depreciates depends on a range of factors, including the type of car, how many miles you drive each day, as well as how well you maintain the car.

Here’s a closer look at how depreciation works, including how to calculate it, why it’s important to know, and what you can do to slow down your car’s depreciation rate.

What Is Car Depreciation?

Car depreciation is the rate at which your car loses value over time. Unfortunately, the process begins almost as soon as you get behind the wheel. Indeed, just driving a new car home from the dealership results in a roughly 10% depreciation. That means if you paid $25,000 for the car new and re-sold it as soon as you got home, it would be worth $22,500.

During the first year of ownership, cars tend to lose about 20% of their value. By the end of its fifth year, a car could have lost as much as 60% of its original value.

Cars lose value over time due to wear and tear, age, and the arrival of newer designs and technologies on the market, which make older cars less valuable.

Importance of Calculating Depreciation on a Car

Paying attention to how a car depreciates is important for several reasons. One is that it helps you figure out how much you may be able to get for the car when it comes time to sell the car or trade it in.

The trade-in value of your car is the amount of money a car dealer is willing to give you toward the purchase of a new car. It’s typically less than fair market value because the dealer will need to be able to turn a profit on the sale of your old car.

If you’re shopping for a car, understanding how quickly a certain car will lose its value can help you decide whether or not you want to buy it. And, if you have a car loan, understanding depreciation may help you avoid getting into a situation where you owe more than your vehicle is worth, which is referred to as being upside down on a car loan.

Finally, if you hope to refinance your auto loan at some point in the future, depreciation can have an effect on the size of your car loan, as it will be largely based on the value of the vehicle.

Recommended: How Much Is My Car Really Worth?

Car Depreciation Formula

To calculate your car’s depreciation, you’ll need to find your bill of sale to determine exactly how much you paid for the car.

The next step is to use an online valuation tool, such as Kelley Blue Book or Edmunds, to get an estimate of your car’s current market value. To find out how much your car has depreciated, simply subtract the car’s current value from the purchase price.

Yearly Car Depreciation Rates

Depreciation rates vary widely, but the average car depreciation over the first five years is 60 percent. However, some cars depreciate considerably slower than that, while others depreciate even faster.

Jeep Wranglers, for example, are known for retaining their value due to their durability, popularity, and iconic design (which doesn’t change from year to year), resulting in a 34% five-year depreciation rate. The Maserati Quattroporte, on the other hand, loses around 64.5% of its value over five years.

Overall, trucks and truck-based SUVs tend to hold their value the best, while electric vehicles and luxury sedans generally see the most depreciation.

Recommended: Calculate LTV Ratio

What Factors Influence the Depreciation of a Car?

Below are some of the key factors that influence the depreciation rate of your car.

Condition

How much wear and tear has been put on your car? Large exterior issues, such as scratches, dents, or broken tail lights can have a big impact on car value, as can issues with the interior, such as torn or stained upholstery. A car that’s in poor condition will generally face a larger loss in value than one in excellent condition.

Make and Model

Some car makes and models hold their value longer than others. This may be due to the car’s reputation for reliability, its safety features, its fuel efficiency, or other factors that make it more attractive to buyers. The more in-demand a car is, generally the less it will depreciate over time.

Mileage

Typically, the more miles a car has been driven, the less it will be worth. That’s because the more a car has been driven, the more wear and tear it’s likely to have experienced, which can lessen the number of unused miles it has left.

Tips to Avoid Car Depreciation

Depreciation is not completely avoidable, but there are some steps you can take to slow down the process and increase the value of your car when it comes time to sell it or trade it in.

Regular Maintenance

Keeping up with regular maintenance, like oil changes and routine servicing, can keep your car in good working condition. It’s a good idea to save all maintenance records so you can show potential buyers that the car has been in good hands.

Protect the Interior and Exterior

Keeping your car in a garage or other covered space can protect it from the elements and help preserve its paint job. It’s also smart to clean your interior regularly and have your car detailed before you get a value estimate from a dealer.

Buy Smart

Some cars depreciate more slowly than others. While these cars may cost more, the extra expense could be worth it if the car will hold its value well. Getting a great price on a new car can also help guard against steep depreciation. Prices are often lowest at the end of the season when new models are about to come out.

Hold Onto Your Car Longer

Cars generally experience the steepest depreciation in the first five years. After that point, the depreciation rate decelerates. Because of this, you’ll feel the effects of depreciation less keenly if you own the car for a decade or so, rather than buying a new car every few years.

Recommended: How to Get Lower Car Payments

The Takeaway

Your car’s depreciation will affect how much it’s worth when it comes time to sell it or trade it in.

To help minimize the impact of depreciation, you may want to choose a car that is known to hold its value over time, purchase a pre-owned car (which has likely already gone through the worst of its depreciation), watch your mileage, and take excellent care of your car.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How much does a car depreciate yearly?

Cars typically depreciate about 20% in the first year of ownership, and then around 10% each year after that for the next five years. After that point, depreciation tends to slow.

How do you calculate depreciation on a car?

You can estimate how much your car has depreciated by subtracting its fair market value from how much you originally paid for the car. You can research fair market value through an online car valuation tool, such as Kelley Blue Book and Edmunds.

Why is it necessary to calculate car depreciation?

Knowing how much your car has depreciated can help you understand how much you can resell it for and how much you might receive on a trade-in. When shopping for a car, understanding how quickly it can depreciate could help you decide whether or not to buy it.

Photo credit: iStock/MilanMarkovic

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-041

Title loans are a form of funding in which you use your vehicle title as collateral in exchange for cash. These are typically short-term, high-interest loans used by borrowers who have bad credit and don’t qualify for other types of personal loans. (In business, title financing is typically used to borrow funds for purchasing equipment.)

Because title loans are secured, there’s a large amount of risk involved for the borrower, who could lose the vehicle if they default. If you’re considering this kind of loan, it’s important to understand how they work and other alternatives you might consider before you apply.

How Do Title Loans Work?

Typically, a title loan is a short-term loan that needs to be paid back within a small window of time, often around 15 to 30 days. The application and approval process are easy and may not require a credit check — which should be your first red flag. With a title loan, you have to hand over the title to your vehicle in order to get the cash. You can still drive your car, but it’s in danger of being seized by the title lender if you don’t pay back your loan on time.

Title loans can be found both online and from brick-and-mortar lenders. In order to potentially qualify for title financing, you either need to have substantial equity in the vehicle (as in a very small auto loan balance) or, in some cases, you may need to own the car completely. You can typically apply to borrow up to 25% to 50% of your car’s current value.

Title loans typically include high finance charges that can translate into an annual percentage rate (APR) of 300%, according to the Federal Trade Commission.

Recommended: Guide to Car Loan Interest Rates

Title Loans Vs Personal Loans

A title loan is quite different from online personal loans.

One of the biggest differences is that a title loan is secured, while a personal loan is typically unsecured (in which case it’s also called a “signature loan”). If you default on a signature loan, you may be held liable for the money you owe, but you usually can’t have your assets seized by the lender to repay the balance.

Title financing is also typically much more expensive than a personal loan, with car title loan interest rates reaching triple digits. Plus, you usually have to repay a title loan within 30 days. It’s easy to get trapped in a debt cycle if you can’t make the full payment by that time. You may be able to roll over the loan balance, but you’ll usually incur hefty fees on top of an APR that can already be sky-high.

An unsecured personal loan, on the other hand, typically has a fixed rate and a longer repayment period. Your payments may be more affordable because they’re spread out over time. You may incur late fees if you miss a payment, but you don’t have to worry about rolling over your balance — most unsecured personal loans don’t permit the practice.

When to Consider a Title Loan

Title loans are typically used by people with bad credit who can’t get financial assistance anywhere else. The funds are often used to cover an emergency.

Generally, a title loan is considered only as a last resort. You should also explore all of your other options before seriously considering title financing for personal use. And it’s certainly not a good idea to take one out for anything that’s not absolutely necessary.

Recommended: Types of Car Loans

Using Title Loans for a Business

Title loans for business work differently than standard personal title financing. Also called equipment financing, this kind of loan allows companies to borrow funds to purchase equipment. Many commercial industries use equipment, from the bulldozers a construction company may need to the kitchen equipment a restaurant might use to the computers an accounting firm might rely upon. Any of these businesses might take out an equipment loan to purchase these necessities. The equipment is then used as collateral for the loan.

Equipment financing rates are typically available with more favorable terms than title loans. Lenders may view these loans as less risky since there’s collateral. Plus, the business generally has to undergo an application process and financial review to make sure the payments are affordable. You may have anywhere from months to years to pay the loan back, depending on the lender.

It is possible to get business equipment financing with bad credit, but rates are typically higher than borrowers with good credit. Lenders may also review how long a company has been in business when determining whether or not to extend the loan offer.

You can usually see the minimum application requirements on a lender’s website so that you can compare equipment financing companies and apply for the business loans most suitable for your needs.

Pros and Cons of Title Lending

Here’s a closer look at the pros and cons of title lending. The negative aspects of title lending can outweigh the positives.

Pros of Title Loans

•   Typically no credit check is required, meaning those with bad credit can secure funding

•   Quick access to money

Cons of Title Loans

•   High interest rates and fees

•   Must be repaid in a short timeframe

•   Requires that you own your car in full or at least have significant equity in order to qualify

•   The lender may also require a GPS device to be installed in your car. In the event that you don’t repay the balance, this lets the lender track your vehicle’s location in order to seize it.

•   While you might be able to roll over your loan into another repayment cycle, you’ll then continually accrue fees on top of the original principal and interest, adding to the debt burden.

•   Your vehicle can be seized if you can’t make loan payments.

Recommended: How to Finance a Salvage Title

Alternatives to Title Financing

When you’re stuck in a financial pinch, you may want to consider all of your other options before taking out a title loan. Here are a few to consider:

Cash-Out Auto Refinancing

If you have an active car loan, cash-out auto refinancing can be a way to borrow money by using the equity you have in your vehicle. You could also potentially get a lower interest rate on your auto loan as well.

Contact Creditors

If you’re undergoing financial hardship and having trouble making payments on your normal bills, reach out to those creditors. You may be able to work out a temporary reprieve in payments or modify loan terms to pay off your debt.

Consider a Credit Card Cash Advance

If you have a credit card that’s not maxed out, you could potentially take out a cash advance. This is not often advised, however. Compare the fees and terms to your other options because you’ll generally be charged a higher APR (annual percentage rate) than your standard credit card interest rate.

Explore Local Bank or Credit Union Loans

Another option is to look for small, short-term loans at local or regional banks and credit unions. You’ll probably be more likely to be approved if you’re already an account holder at the financial institution.

Recommended: How Does PreApproval Work?

The Takeaway

A title loan uses your vehicle’s title to secure a loan. You receive a portion of your car’s equity, usually at a high rate of interest for a short period of time. If you default, the lender can take your car, which serves as collateral. Because of the risk of losing your car’s title and the challenge of paying a high interest rate, it may be best to avoid a title loan and look for alternatives. For instance, if you have an active car loan, cash-out auto refinancing may be an option to explore.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is a title loan ever a good idea?

Car title loans can seem like a convenient option for getting fast cash, but they come with high interest rates, short terms, and the risk of losing your vehicle. For this reason, exploring your options can be a smart move.

What are title loan disadvantages?

There are several key disadvantages to title loans including the high interest rates (up to 300% per year), short repayment terms (often, a month or less), and the risk of repossession if you default on your loan.

What is the most you can get for a title loan?

Typically, title loans will pay out 25% to 50% of the vehicle’s value. The average amount loaned in this way is approximately $1,000, but the range can be from $100 to $10,000.

Photo credit: iStock/Dmytro Skrypnykov

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-040

Car registration is one of the documents you’ll need to legally drive a vehicle. All U.S. states require registration in order to know who owns the car.

You’ll likely be asked to show this document many times — to law enforcement, to officials when you’re having emissions testing done, and to dealers or buyers when trading in, selling, or refinancing the vehicle.

The registration process can vary significantly by state. To help guide you through what’s needed to get your car registered, we’ll walk you through questions from “What is a car registration?” to “What are car registration fees?”

Car Registration Definition

Vehicle registration is one of two key pieces of documentation that people who own a car must have. The registration document is proof that you’ve signed up (“registered”) with the state you live in and are legally allowed to drive that vehicle on public roads. Note: Car registration documents need to be regularly renewed with a registration fee paid each time.

This differs from the second key piece of documentation, the car title, which indicates you own the vehicle. Car titles don’t need to be renewed; it only changes when you pay off a vehicle (and the title is now 100% yours) or when the car is sold to another person.

Recommended: How to Sell a Car You Still Have a Loan On

Why Do You Have to Register Your Car?

Registration documents are used by state governments to establish who owns a vehicle, information they then use for more than one purpose, including when assessing taxes and searching for criminals.

After you register your vehicle, you’ll be provided with license plates and, in some states, you’ll receive an updated sticker to place on your license plates each time you renew your registration paperwork.

What Happens if You Don’t Register Your Car?

It’s illegal to drive an unregistered vehicle or one with an expired registration. Drivers are required to have their registration documentation in their vehicle and may be asked for it by law enforcement professionals if they’re stopped.

If you cannot produce your car registration when asked to by the police, you face steep fines. Different states have different fines. In some states, the worst-case scenario is they will impound your car, you’ll be charged with a misdemeanor, and you could even face time in jail.

Recommended: Can You Register Your Car Without a License?

How to Get a Car Registered

Specifics on how to get a car registered can vary by state. In general, though, you’ll register your vehicle with your state’s Department of Motor Vehicles (DMV) or their transportation department.

Here’s how the typical process works:

•   You’ll show the registration office the title of your car to prove ownership. With a leased car, the lease agreement will be used. If this car is new to you (whether literally new or used), you’ll also provide a certificate of origin for a vehicle bought from a dealership or a bill of sale if you bought it from an individual. Be prepared to provide the odometer reading (the vehicle’s mileage), if asked. Although the car’s title should have the necessary information about your vehicle, it can help to know information about it, anyhow, such as the make, model, and year, as well as its vehicle identification number (VIN).

•   In some states (usually with a used car), you’ll have to show that your vehicle meets the state’s exhaust emission standards and is otherwise sound before renewing your registration.

•   Be ready to provide the registration office with proof of auto insurance. Again, state requirements vary. Have your driver’s license handy and, if newly moved to the state, proof of your address. Plus, you’ll pay registration fees each time.

Contact your state’s transportation department for specifics on what you need to register your vehicle.

Recommended: What Is a Car Appraisal?

When to Register a Car

The three main times you’ll register a vehicle are:

•   When you’re buying it

•   If you’re moving to another state

•   When you’re renewing your registration according to your state’s schedule

According to the National Conference of State Legislatures, individual states require registration renewal either annually or every other year.

Recommended: 9 Tips for Buying a Used Car

Does Registration Transfer to a New Owner?

You only transfer a car registration if you move states or want to use the license plate from your previous car. If you buy a car without selling or trading in an old car, you would register that car with your state and receive a new license plate.

Do You Pay Registration on a Leased Vehicle?

When you sign a lease, you will also have to register the car with your state’s department of motor vehicles. Sometimes the dealership will register the car for you and pay the fee, but it’s important to make sure this is done by someone.

When Are Car Registration Documents Needed?

Car registration documents are needed if law enforcement asks to see a copy. If your state requires an emissions test, they may want to see this paperwork, so check yours for specifics. In some states, the inspector may ask for either the title or registration, although there are ways to get the vehicle tested without them.

Other times you’ll need your car registration documents are when you want to:

Trade in a Car

If you’re ready to trade in your vehicle to a dealership, most states require that you, at a minimum, present the title. They may require more information, including the registration form, so ask the dealer what they’ll need.

Refinance a Car

If you want to refinance an automobile, you’ll need to provide both your car title and the registration documents to the lender. Having all of your documentation in order will help to make the car refinance process run more smoothly.

You may also want to consider ahead of time what questions to ask when refinancing a car, such as the interest rates and terms available.

Buy a Car

When you buy a car, you’ll need to register it with your state’s DMV or transportation department; the specifics of the process will vary by state. Take the title or lien agreement and the certificate of origin or bill of sale with you when you do so.

Sell Your Vehicle

In most states, the sale of a vehicle requires the title and may also require that you provide your registration documentation. Check your state for specifics on what’s needed.

What Are Car Registration Fees?

Usually, you’ll pay a one-time title fee when you buy the vehicle and then an annual car registration fee (although some states charge this fee every other year). The amount of the car registration fee can vary significantly by state and can increase in price if you choose to buy vanity plates. Some states charge a flat fee while others use the vehicle’s age, gross weight, or fuel efficiency to calculate the amount charged.

Most Expensive States to Register a Vehicle

The most expensive states to register a vehicle include Oregon at $312 for four years, and Hawaii and Connecticut at $250, according to AutoInsurance.org.

Recommended: What Is a Lease Disposition?

The Takeaway

There’s no doubt that vehicle registration is an essential document for a car owner. It’s the document that proves you’re legally allowed to drive on public roads. You’ll need to keep it in your vehicle when you drive and make sure it gets regularly renewed. Car registration is needed not only if you’re buying or reselling your car, but also if you want to refinance.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How much does registering a vehicle cost?

The cost of registering a vehicle varies by state and can depend on factors like the vehicle’s make, model, year, and weight. Fees typically range from $20 to $200.

Do you have to pay to register your car every year?

Your vehicle registration will need to be renewed once a year or every few years, depending on what your state mandates. You may need to pay a fee each time.

Are title and registration the same thing for a car?

No. A title is a physical document that proves that you own your vehicle, which has been legally registered. Your regional DMV gives you the document. Vehicle registration proves that your vehicle is safe to drive on the road and that you’ve paid the necessary fees and taxes.

Does every state require vehicle registration?

Yes, every state in the U.S. requires vehicle registration to legally operate a vehicle on public roads.

Photo credit: iStock/anyaberkut

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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