Don’t Be Drawn into a Vehicle Straw Purchase

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Even with poor credit.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - February 8, 2018

In auto financing, it's a straw purchase when the borrower isn’t the primary driver of the car. These can begin in several ways, but no matter how it starts, all straw purchase scams are fraud.

An Unwitting Foundation

When a potential borrower has poor credit, financing a car can be difficult. All lenders working with bad credit car buyers have requirements to qualify for lending, but the specifics vary. If a consumer is struggling to meet these requirements, lenders often ask the potential buyer to find a cosigner.

Cosigners are typically close friends or family members who have good credit and meet all the required criteria. If financing isn’t possible, even with a cosigner, the process normally stops. At this point, the potential for a “straw deal” is very real.

Consumer-Initiated Fraud

When a borrower initiates a straw purchase, they may have good intentions.

  • Some might make arrangements with a would-be cosigner to take out a loan in the cosigner’s name.
  • Friends could feel they’re helping by suggesting they finance a vehicle for the buyer.

Whatever the case, it’s a risky situation for everyone involved.

For the borrower – the person who actually signs the contract – the situation is risky because they’re responsible for the loan on a car they don’t have. If the driver drops their end of the bargain, the borrower will suffer any consequence of non-payment, or other events such as accidents or theft.

For the driver – the person who was the intended bad credit car buyer – having someone else purchase a car doesn’t help improve their bad credit, and if the person who signed the paperwork decides to take the vehicle, there's no recourse.

For the dealer, this is usually a violation of agreements with banks or other lending institutions. If lenders become aware of what’s happening during a transaction, they should stop the sale immediately. If a loan defaults and the contract holder doesn’t have the vehicle, it could have a negative impact on the dealership.

Dealer-Initiated Fraud

When an unethical dealer initiates a straw purchase, they’ll typically present it in one of three ways. As a consumer, don’t get drawn into any of these situations:

  • A dealer playing the “saving you money” card. In this situation, the dealer explains that with both the potential buyer and cosigner on the loan, interest rates and monthly payments will be higher, but if just the cosigner were to take out the loan, it would save the original buyer money with lower rates and payments.
  • If both parties insist on signing, a dealer may already know the financing will fall through. If they start the process anyway and the deal falls apart, a dealer may try and persuade a consumer to have the cosigner become the sole purchaser.
  • A third scenario involves willful fraud, where a dealer has both parties sign duplicate contracts, and then disposes of the copy for the intended buyer, leaving the cosigner with good credit as the sole purchaser.

These potential scenarios may seem extreme, but they’ve happened before. They’re illegal in most states and any potential car buyer needs to stay vigilant, especially those with poor credit.

Financing with the Right Lender for Your Needs

When credit issues have you down, but getting a vehicle is a must, make sure you know where to turn. Here at CarsDirect, we can help start you on the path to a local special finance dealer that has the lending resources available for people in many challenging credit situations.

We work with a nationwide network of dealers that have lenders specializing in bad credit, no credit, bankruptcy, and even repossession. Take the first step toward rebuilding your credit and getting the car you need by filling out our no-obligation auto loan request form. Get started now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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