Why Am I Not On The Loan?
The term straw purchase is normally associated with firearm sales. In the car sales industry, it means when someone with better credit intentionally finances or leases a vehicle for someone who can not buy a vehicle because of bad or poor credit.
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The term “Straw Purchase” is normally associated with the purchase of firearm sales. This is when someone buys a firearm for someone who is not allowed to purchase one themselves. This could be because of a prior felony or someone ineligible for any reason to own one.
When the term is used in retail automobile sales it refers to when someone with better credit purchases a new or used vehicle for someone who, because of bad credit, is unable to obtain financing.
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If you purchase a vehicle for someone and they’re not on the loan, you’re the one ultimately responsible for paying it back. If they decide to quit paying for the vehicle, you either have to make the payment or risk seriously damaging your credit history for years to come.
If you have someone buy a car for you and you’re not on the loan, it will not help you establish or improve your credit history. You will not gain anything by having someone else purchase a vehicle for you.
It’s very difficult to detect a straw purchase scam. The best thing you can do is to avoid it altogether. Laws differ state by state, some states may consider the straw purchase of a vehicle to be illegal.
This scam can be attempted by either party, a customer attempting to buy a car for someone else or an unethical dealership trying to make a sale.
Straw purchase attempted by a customer
A straw purchase is normally initiated by a customer who is attempting to buy a car for a friend or family member who is not able to buy a car because they have bad credit. A “reputable car dealer” will immediately terminate the deal or refuse to sell the car if they become aware of the situation.
When a dealer sells a vehicle to someone that’s buying the car for someone else to drive violates standing dealer agreements with the dealership’s banks and lending institutions.
Straw purchase attempted by an unethical dealership
You go to a car dealership to buy a new or used car. The dealer tells you because of your bad credit history there’s no way they can get you financed on your own. He tells you to find a cosigner that’s willing to help you qualify for a car loan.
The dealer continues to tell you by getting a cosigner you’ll also be able to establish some positive credit history to balance out the bad. At this point, the dealer already knows by looking at your poor credit history, even with a strong cosigner you’re never going to get approved for the car loan.
Listening to what the dealer told you, you find a willing cosigner and head back to the dealership. There are typically three different ways the straw purchase scam can play out from this point.
Unethical dealers can set you up for this scam in many different ways. Below are the three most common scenarios.
Dealership straw purchase scenario #1
This scenario is normally used if the dealer believes they have a pretty good rapport with the customer and goes something like this:
The dealer explains if you both go on the car loan your interest rate will be some outrageous number like 23.95% and your payments will be really high, like $892.00 a month for 72 months or something of that nature.
However, if you don’t go on the loan and the signer with the great credit buys the car. The interest rate will be 3.9% and your payments will only be $325.00. As you can see that is a pretty easy manipulation when it comes down to needing a car to drive.
The dealer continues to tell you by getting a cosigner you’ll also be able to establish some positive credit history to balance out the bad. At this point, the dealer already knows by looking at your poor credit history, even with a strong cosigner you’re never going to get approved for the car loan.
Listening to what the dealer told you, you find a willing cosigner and head back to the dealership. There are typically three different ways the straw purchase scam can play out from this point.
Scenario #2
The second scenario takes place if the dealer is unable to keep you from going on the loan or the deal ends up falling through with you on the loan even with a good credit cosigner. The finance manager will wait a few days or even a week to call you and tell you your financing has fallen through.
He explains to you that you must bring the car back immediately and they must charge you for the miles you’ve put on the vehicle. They may even go as far as threatening to keep your trade-in.
You ask what you can do to keep the car and the dealer tells you there is no way to keep the car with you on the loan. However, your co-signer could buy the car, but it would have to be purchased only in their name.
Now pay close attention to what’s going on here. The dealer isn’t coming right out and telling you to have your cosigner buy the car for you. Doing that may be illegal in some states. However, the dealer is coaching you to get the cosigner to just buy the car for you only in his name.
Scenario #3
The third scenario of the straw purchase scam is pretty deceitful when done by a car dealer. This is when the cosigner comes to the dealership and is deceived by the dealer’s staff during the signing process of the paperwork.
The dealer will have extra paperwork or several of the same forms written in different ways, making excuses; they may need all of it to see which way will be the best way to get your car deal approved at the lowest interest rate.
They will then rush you and your cosigner through the paperwork process and attempt to confuse your cosigner and mislead them into signing as the primary signer and all the other paperwork is later sent through the shredder. I know it sounds farfetched but I’m telling you it happens.
You end up finding out a month or so later the dealer never added you to the car loan. Usually when your cosigner gets a bill in the mail for the first payment and your name is nowhere to be found on it.
As I said before, laws are different from state to state. It’s very difficult to prove you have been duped into a straw purchase scam. One of the major reasons is because it’s the cosigner’s signature on all the documents and your papers have been sent through a shredder.
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If you believe you’re the victim of the straw purchase scam you can file a complaint with your State’s Attorney General’s Office and/or the Better Business Bureau. This will hopefully make others aware of the deceitful car dealer and its employees. If a dealer gets enough complaints they will be investigated.
Since the laws vary from state to state you may want to speak with an attorney to find out what legal recourse you have. When it comes down to it. The dealer has a copy of all the required paperwork with only one signer’s name and it’s not yours.
It’s very difficult to detect the straw purchase scam and maybe a very expensive, long, and drawn-out process to get a verdict.
Your best defense is to always have both signers at the dealership at the same time, recognize the signs, and avoid the straw purchase car dealer scam at all costs.
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