The Straw Purchase Scam
We saw a resurgence of this scam in 2005 and 2006. It typically increases when interest rates go up, and fewer people qualify for loans as lenders tighten their belts. A straw purchase traditionally refers to handgun sales. When one person buys a handgun for a person who is ineligible to own one, it's called a Straw Purchase, carrying stiff penalties. That's how the Columbine High School student shooters got their guns. With car buying, the dealer tells you that with your horrible credit score, you can't qualify for a car loan so you need to get a co-signer, plus they tell you that it will help build your credit again. No problem, Grandma will co-sign the papers for you. The dealer knows your horrific credit score could not possible ever qualify for a loan, even with a co-signer. Grandma is easily duped by the dealer during the paperwork shuffle, tricked into signing as the primary borrower, and 2 weeks later you find the dealer did not process a co-sign loan, the entire loan is in Grandma's name! This does not help your credit, even though you are paying the monthly payments, because the loan is in grandma's name, and the car dealer lied to you. State laws are vague but I hear some states like Texas have laws against Straw Purchases on cars.
The Straw Purchase Scam
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