Who’s involved? – New and Used Dealerships
What is it? – The Straw Purchase is a crafty scam which tricks cosigners into assuming responsibility for a loan. They do this when someone with bad credit needs a cosigner in order to purchase a vehicle. Really what is happening is that the buyer’s credit is so bad, that there would be no way to be approved for a loan. Somewhere in the paper work signing, they will have the cosigner sign a separate document from the actual buyer. What is actually happening is that the cosigner is signing to become the primary borrower on the loan. This is a very tricky and dangerous trap to fall into as many state laws are ambiguous when addressing such issues as straw purchases.
How to avoid? – Avoiding this is somewhat simple. Read your paperwork before you sign and never allow the cosigner to sign a separate document (that has not been properly inspected). For the most part, however, if you do not have the credit to even get a loan, you should consider building it up before making a big time purchase like a new car.
Terms & Trigger words to avoid? – “You’ll need a cosigner”; As soon as a salesman mentions to you that you need a cosigner, you should either already know that based on your credit history. Hearing the word “cosigner” should immediately kick up your guard. While this is a general term in the automotive world, it is because it is so widely understood that dealers can get away with the straw purchase scam. Be alert to what is happening.
Tyler Baker; OSM Writer