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My son and his girlfriend have been living together for a while (and have a child together).
Recently, his radiator blew on his very old Nissan and he was going to a local dealership to try to buy a previously-owned vehicle. We knew he would have problems with the financing as they have no credit cards nor any bills outside their utilities. Both work and have been at their jobs for over 6 months. Neither has previously bought a car, so there'd be no record of that for credit history.
My son used his free yearly credit report - and found that he had a credit score of just over 700 (not great, but not bad). She didn't have any score at all.
In any case, after going to the dealership and applying, they were told because of the lack of credit history, they were not able to get a car loan through the dealership.
A couple days passed, and my wife and I realized they really need the car for them and the child (public transportation is really lacking in this small town I live in (pop. 95,000). So, I decided that I would buy the car for them. I called my credit union and was pre-approved before I hung up the phone. The dealership asked if I would let them try to beat the 4.0% I was offered from the credit union and I said "sure."
They came back and told me that all they could get me was 5.5% and that my son would have to come sign also if I wanted that. I told them that I didn't want my son on the list, and they said that he HAD to be... that it was illegal for me to buy the car for him (because he couldn't get the loan on his own).
Is this true? Is it illegal to buy a car for someone who couldn't get a loan on their own due to lack of credit history?
I believe you should be able to get the same terms if you co-sign the loan, which essentially means that you are making the loan, but the payment record will benefit his credit. If he doesn't pay, you do.
If you buy the car on credit, and get the title in your name, you can't transfer the title to your son without the approval of the lienholder (the bank). Whoever loans the money wants the car title in the name of the person whose credit has supported the loan.
The answer to the OP's title question is, yes, you can always legally buy a car for someone else, as long as all interested parties are in concurrence. But in this case, it is the bank who is buying the car, and letting you use it as long as you make the payments, and when the bank is introduced into the mix, they make the rules according to their interests.
I'm not sure why you would want the dealer's 5.5% loan when you said you could get it it for 4% at your credit union?
I wondered that myself, I'm guessing that the fact that the car was actually for his son didn't come up when he talked to the credit union and is looking for some clarification as to whether or not this is universal.
Primary driver has to be on the loan application (and title), if they're not it's considered a straw purchase. The reasons for that is pretty obvious if you think about it. If you buy a car for someone else, then stop paying on it and it goes to repossession how will they find their property?
If a son or daughter is under 18 however, you're allowed to finance for this person, as they're not old enough to buy the car themselves.
If you do decide to conduct a straw purchase, be aware that it is considered fraud (in that pile of documents you sign, you also sign that you're the primary driver etc etc etc) and if the bank somehow finds out, they have the legal right to go after you.
The two easiest, completely on the table ways to do it is this: Buy the car cash, if you do that, no one cares who you're buying it for and why. The other option would be to have you, the father, co-sign with your son, you should be a strong enough co signer that the APR stays the same or very close to it. And for the record, 700+ is considered good credit, close to great, you won't believe how many are in the 5-600's.
EDIT: In any case, it wouldn't hurt to go to both a dealership and your credit union and see what rates you get approved at with you as the co-signer. If you have a good relationship with your Credit Union, they'll be more than willing to help out.
If the car is in your name and your son or DIL wrecks it, your going to have to lie and say you let them "borrow" it. Your son cannot get insurance on a car thats in someone elses name (at least not where I live).
I think your better off co-signing and letting your son build his credit, so next time he can buy one on his own without you.
If the car is in your name and your son or DIL wrecks it, your going to have to lie and say you let them "borrow" it. Your son cannot get insurance on a car thats in someone elses name (at least not where I live).
I think your better off co-signing and letting your son build his credit, so next time he can buy one on his own without you.
I was going to say, just to help him build his credit.
The reason for the question is because of the last experience I had.
When I told the dealership I had the 4.0, they asked if they could try to get by business. When they found they couldn't match or beat the interest rate, they asked if there's something they could do to still get me to go with them. I asked what they could do to "sweeten the deal". As it comes out.... because the loan was for a pre-owned vehicle and not very much, the difference in % would only come out to around $400 over the life of the loan.
So, they said they were going to give me "gap" coverage for free.... they took $800 off the price of the car, and gave me the gap coverage (which was $800) and added that in... "essentially" free. I asked them to keep the gap coverage... mine was fine, and just take $800 off the cost of the car. They said they couldn't do that.
So, I said that they must not want my business that bad then, and I should go with the better rate - the credit union. The finance guy got his boss in there, who then showed me the paperwork with the 5.5%. That's when I saw it was under both our names. I told him I didn't want that... I wanted it under my name only, and he basically accused me of being shifty and said "we do things above board here... I'm not risking my license for you". Of course that torqued me, and I started walking out... but he started asking me what he could do to keep my business (never apologizing).
So... he explained that he (the car dealership) knew I was buying the car for my son, and that he doesn't live with me, and that I couldn't buy a car for someone else. I figured that the bank didn't give a crap where the money came from as long as they got paid and that the dealership was out of line.
I bought my son a car several years ago (another used)... when the loan was paid off, we changed his insurance from full coverage to liability - and he put it all under his name, even though the car was registered only to me. So, I didn't see the difference here with full coverage, but apparently I'm wrong.
Thanks for all the inputs... I really appreciate it.
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