Are straw loans legal?

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Are straw loans legal?

Party A has bad credit and can’t get an auto loan. Party B has excellent credit. Is it fraud if party A signs the contract as a co-signer? Even if the car will only be driven by Party A? Is there a legal variation of this?

Asked on June 1, 2011 under Bankruptcy Law, California

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Yes, it is most definitely fraud and it can get you in to very deep trouble.  Most times the party with the good credit is paid for the use of their credit in order for the party with the bad credit to be approved for the loan.  This is a no no under the law as you seem to know.  The legal variation would be to just be a co-signor and not to pay the person.  People co-sign for vehicles every day.  The person co-signing needs to know, however, that they could become liable for the payments should you default.  And that they really have no right to the vehicle as the title will be in your name.  Good luck to you. 


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