What Is A Straw Purchase Car and Why Is It Illegal?

What Is Car Straw Purchase?

A straw purchase is when someone finances a vehicle but they have no intention of being the main driver of the car. This often happens when someone doesn't qualify for a loan, and assumes that a family member will be able to finance a car for them.

A straw purchase is different from purchasing a vehicle with the intention of someone else driving it, like a newly licensed child. In this situation the purchaser typically lets the dealer and the lender know that the purchase is not intended for you to drive.

In a straw purchase, you're purposefully deceiving the lender by making no indication that someone else will be driving the vehicle or paying the loan.

Why Is a Vehicle Straw Purchase Illegal?

A straw purchase is considered fraud since loan documents contain provisions that the borrower must also be the primary driver. All lenders include these rules in their contracts; this is helpful in the event that the car needs to be repossessed, and it makes it easier for them to find it.

If the lender finds out a straw purchase deal occurred, they have the legal right to pursue the borrower. Depending on the state you live in, a straw purchase could mean hefty legal fines, repossession, or revoked licenses for both the buyer and the driver involved in the straw purchase.

Ways to Avoid Car Straw Purchase?

If you need to purchase a vehicle for someone else to drive, you can do so. However, it's still technically a straw purchase. The difference is that you inform the dealer and lender, who then makes provisions in the contract naming another party as the primary driver.

Another way to avoid a straw purchase is to get a loan as a co-signer or a co-borrower. When you take on a loan with a co-signer, the second person acts as a backup payer and gives a lender more peace of mind, but they're not listed on the loan. As a co-borrower, you're both responsible for the payments, and both names are listed on the loan.

What if I Have Bad Credit?

Making a straw purchase deal isn’t worth the legal trouble. If you need a vehicle but your credit is holding you back, don’t think you’re down for the count. The key is to work with a subprime lender.

These lenders offer loans through special finance dealerships and understand unique credit situations. As long as you meet their financing conditions, which include income and employment requirements, you shouldn’t have an issue at least being considered for an auto loan.

To boost your chances of getting approved for a car loan, you may want to consider adding a cosigner with good credit. A cosigner’s main role is to help you get approved by attaching their name and credit to the loan.

This arrangement means they're legally obligated to the loan, so the cosigner has to take over the payments if you, the primary borrower, can't make them. This gives lenders extra assurance and makes them more likely to approve you.

If you’re unable to qualify, or don't have any credit at all, you could go to a buy here pay here (BHPH) dealer. Unlike special finance dealerships, BHPH dealers are also lenders. What makes them great for buyers with bad credit or no credit is that they don't typically look at your credit score.

Instead, they qualify borrowers based on their income. As long as you make enough to afford the payment and can meet the down payment requirement, you have a good chance of being approved.

What if I Have Limited Income?

If, on top of having bad credit, your income situation isn’t so hot, you have another choice that can help you get an auto loan that isn't a straw purchase – adding a co-borrower.

If you have a spouse that meets the minimum income requirement, you could add them to the loan. Lenders combine your incomes when a co-borrower who is a spouse is added, so you can both qualify together. Both a primary borrower and a co-borrower share ownership rights to the vehicle and are both responsible for paying the loan.

Should I Use a Car Straw Purchase To Finance a Car?

Car straw purchase deals are considered fraudulent and usually occur when a consumer with good credit purchases a vehicle for someone with limited or poor credit. You should never do this – instead, let us help you get the auto loan you need.

At Auto Credit Express, we’ve been matching credit-challenged consumers to local dealers for over 20 years, and we want to help you, too. Getting started is a breeze, simply complete our free and fast car loan request form, and we’ll get right to work connecting you!