How to Avoid The Two Newest Car Dealer Scams: Straw Purchase Scam

straw purchase scam

What is a Straw Purchase Scam?

The straw purchase scam is ordinarily associated with the purchase of firearms. Someone will purchase a firearm intended for someone else. The other party cannot legally buy a firearm and has a friend purchase one for them. This purchase could be for a felon or someone otherwise unable to purchase the firearm legally.

In auto sales, a person who cannot qualify for financing has someone co-sign for the loan. The dealer will change the paperwork so that the co-signer becomes the sole buyer. The car buyer and the co-signer are not aware of this switch. In some states, this is illegal.

When a person with a poor credit rating tries to buy a car the dealer will tell him he will not qualify. However if he gets a co-signer for the loan they will not only be driving the car of their choice, but will also help repair their credit.

There are several ways straw purchase scam works. The dealer will tell the buyer that with two people on the loan the interest rate and monthly payment will be extremely high. However, with only the co-signer on the paperwork the rate and monthly payment will be something the buyer can afford.

Another way a dealer can get you is by the paperwork shuffle. The dealer will say there is extra paperwork to signed. They push you through the process and eventually mislead the co-signer as signing as the primary signer. While the original paperwork disappears.

In these scenarios, the dealer does not come right out and tell you to have your co-signer buy the car for you. That is illegal in some states. However, the dealer is leading you to get the co-signer to buy the car for you in his name only. When the first bill arrives, bu then only the buyer realises the new payments inluded.

Read more about straw purchase scam and ways to avoid it