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.