What’s a straw purchase dealer scam?

On Behalf of | Aug 16, 2021 | Auto Dealer Fraud

Imagine this: You go to a dealership to buy a vehicle. You find one you like that is around $2,000 above your limit. You can’t finance it, so you decide that you should walk away and wait to get something else.

Then, the dealer stops you. What if someone they know would be willing to finance that vehicle for you at a better rate? They’ll keep it in their name until you pay it off, but you can still drive it. It sounds good, right? Unfortunately, this is not legal and is a form of auto dealer fraud.

Understanding a straw purchase scam

With a straw purchase scam, you have to be very careful. If someone suggests that they can buy a vehicle for you and transfer the title upon your final payment, you have to be certain that you have this in writing and, even better, written in a contract.

You won’t gain any benefit from having someone else buy a vehicle for you without putting your name on the loan. Why? You won’t get a boost to your credit when you make payments on time. You also have no way to know that the other party will actually transfer the vehicle to you at any point. Even worse, if you miss a payment and aren’t on the loan, they could say that you stole or borrowed the vehicle and take it back with no easy way for you to fight their claim.

Straw purchases are bad for both sides of the deal

Straw purchases are a bad idea if you try to buy a vehicle for someone else, too. If they stop making payments, you have to be prepared to repay the loan that is in their name. Repossessing the vehicle may be difficult, too.

Is a straw deal the same thing as purchasing with a cosigner?

No, they aren’t the same. For example, if you sign a contract with a cosigner and both of you are on the loan, that’s completely legal. However, if the cosigner is the one on the loan and you are left off by the dealer because your credit is too poor, then that may be a straw deal that places the other party at risk.

Watch out for this kind of behavior. If a dealer tries to take advantage of you or does finalize a straw deal, you need to look into your legal rights.