Co-Signer Loan Car Dealer Scam Exposed

Everything you ever wanted to know about the "Co-Signer Loans Car Dealer Scam" but didn't know who to ask. This section of I'll show you how to recognize and avoid this clever car dealer scam.

co-signer loans car dealer scam man signing car loan caution tape |

The co-signer scam is similar to the straw purchase scam. has had a lot of readers ask about this technique dealers still use to this day.

The co-signer loan scam not only affects the co-signer it also affects the actual buyer of the car. The person co-signing believes they're helping out a close friend or family member buy a car while helping them build and re-establish positive credit history.

The actual buyer is unknowingly removed from the loan and the co-signer becomes the sole buyer. The co-signer is now left with all the responsibility of repaying the loan and the actual buyer ends up not building any credit history or gaining anything from the transaction.

What is the Co-Signer Loans Scam

This is when a customer tries to qualify for a car loan but does not have the credit history to do so. The salesperson will ask the customer if they have a family member or friend, with good credit, help them buy the car, or co-sign.

When the co-signer gets to the dealership, the salesperson may tell them they're only signing with the buyer as a reference, only to help the signer to establish their credit. This is not true.

If you cosign on a loan you're taking on the exact responsibility as the signer.

The actual scam is when the buyer is unknowingly removed from the loan and the co-signer is the only one on the car deal.

This car buying scam occurs frequently in car dealerships across the Nation. It has a lot of the same characteristics and is very similar to a straw purchase and it usually starts with the spot delivery car dealer scam.

Read my article on how the finance process works in a dealership to familiarize yourself on how car dealerships make money during the finance process of buying a new or used car.

How the Co-Signer Scam Works

Just like most car buying scams there are several different variations of how the co-signer loan scam is committed on unsuspecting car buyers. Here are a few of the most common ways this scam may be pulled on you.

1) Spot delivered by the dealership

The most common is when a car dealer knows upfront your credit history is so bad, there's no way you'll qualify for a car loan on your own. The dealer will make you believe you've been approved and everything is great. They'll have you sign the contract and paperwork and let you take delivery of your new car.

You'll leave the dealership believing you bought a car and go about your life. After a few days, you're called back by the dealer and told your financing fell through. You either need to bring the car back or find a co-signer with great credit to go on the loan with you..

If you find a co-signer, you'll have to go back to the dealership and resign the paperwork. This is where you will be susceptible to the next two scenarios.

If you can't produce a co-signer. The dealer will either try to switch you to a cheaper car you can qualify for on your own, or you will be sent home on the "hush puppy express" (walking).

2) The actual buyer is kicked off the car loan

This technique also works when the car dealer knows, upfront, there's no way the actual buyer can be on the car loan no matter how good the co-signers credit is.

The dealer will deliver the car with both the you and your co-signer on the contract. The dealer will allow the car to be driven by you for a few days, or longer, in hopes that you will not want to give the vehicle back.

After a week or so the dealer calls and explains to you they were unable to get the car loan approved with you on the loan. However, they were able to get the car loan approved using only the co-signers information and credit history.

The dealer is hoping enough time has passed and you've "fallen in love" with the vehicle. The dealer is also hoping you will pull on your co-signers "heart-strings" to sign for the car on their own so the dealer won't take the car away from you.

3) Signing multiple contracts and the paperwork shuffle

Last but not least is having you and your co-signer sign multiple sets of paperwork. The finance manager will have you sign a contract and a set of paperwork by yourself and then have the co-signer sign their own contract and paperwork also.

The finance manager may have both parties sign the title application or other fake forms for show and effect. Signing the title app will make it appear you're on the title and registration and your legit. However you will not get any positive credit, just parking violations.

To keep you or the co-signer from complaining or threatening a lawsuit because you're not on the car loan at a later date. The finance manager will not give any copies to you, the buyer, and run any documents signed by you through the shredder as soon as you take delivery of the car.

How to avoid the Co-Signer Scam

Now that you know how to recognize and avoid the "Co-signer Loan Car Dealer Scam." Familiarize yourself with other common dealer tricks to protect yourself while buying a car from a dealership.

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