Straw Purchase

A straw purchase in auto financing is when someone (the straw buyer) with better credit buys or leases a vehicle for someone else who would not qualify or be approved on their own. This arrangement is often used to deceive the lender about who the true primary driver or owner will be. For instance, a person with poor credit might have a friend or relative with good credit take out the loan in their name, with an understanding that the friend will actually use and pay for the car. Dealerships in Canada must be alert to straw purchase attempts because they violate lender policies and can be considered fraudulent. Telltale signs include the credit applicant having little interest in the vehicle or a different person negotiating and planning to drive the car. If discovered, lenders can cancel financing or demand immediate repayment, and the dealership’s reputation and standing with lenders can be jeopardized. Sales staff and F&I managers are trained to ensure the buyer on paper is the actual owner/user to avoid these situations.