“Mr. Beaver, I am 23, have just graduated from Humboldt State in Eureka and will be starting a job in a town about a four hours drive from home. If it is necessary, my parents agree to co-sign a loan for a new car, and I am really in a hurry to get this done.

“We do not want to be taken advantage of or do something stupid as we’ve never done anything like this before. Do you have any advice for us? Thanks, Derek. ”

We ran Derek’s question by Jeff Ostoff, C.E.O. of CarBuyingTips.com. This website, combined with its many YouTube educational videos, makes it, in our legal opinion, the first place to visit before setting foot on a car dealer’s lot.

First time buyers are at risk

“Dennis, your reader is doing the right thing before just going out and buying a car. However, Derek and his parents need to slow down, as a major source of trouble is self-inflicted. This is especially true for the young, first-time car buyer who often gives no forethought or planning for this major purchase” Ostroff points out, adding, “and when three crucial elements come together, you’ve got a recipe for trouble.”

They are:

Being impulsive or feeling under pressure to buy a car now

Not knowing your credit score

Pressured by the dealer to have a co-signer

As he explains, “Simply rushing out to buy a car without doing adequate research, feeling ‘I’ve got to have this car now!’ combined with not knowing your credit score opens the door for a car dealer to reject you immediately and insist that you have a co-signer.”

Rejected on the spot for credit - the co-signer scam

“A co-signer makes it easier for them to finance the sale,” Ostroff notes and cautions, “One of the worst and most foolish things that anyone can do–and I am referring to parents and close friends--is to lend their good credit to another person’s ability to buy a car.”

From experiences readers have shared with You and the Law, we found many instances of young buyers with good credit and a high-paying job–when the numbers did not suggest the need for a co-signer–still car dealers insisting they have one.

“As the pressure slowly mounts and it looks as if there will not be a sale without a co-signer, not wanting to let down family members or close friends, the dealer makes the sale, while the co-signer is exposed to the risk of having to pay if the buyer defaults. Primarily, it’s buyers who don’t know their own credit score, who fall victim,” Ostroff notes.

So, just how risky is it, being a co-signer? In a recent survey of 2,000 co-signers conducted by the CreditCards.com, 40 percent found themselves on the hook for at least part of the bill the borrower didn't pay, while 28 percent saw a drop in their own credit score from that borrower's bad credit habits.

Will readers who still want to be a co-signer please raise your hands. Please. Someone. Anyone?

Still risk when you know your credit score

Let’s picture Derek but with a print-out of his credit score which is in the 700's. As Ostroff tells us, he is still not home free.

“There are different credit scores and the one that can really harm a car buyer is the very strict FICO scoring system for auto loans which is claimed to identify up to 15 percent more potential delinquencies. A dealer might try claim that Derek’s score is actually much lower than it appears, and therefore he must have a co-signer, or accept a higher interest loan.

“Tell Derek to head for the door,” advises Ostroff. They do not want to lose a sale and might disregard the FICO score. This is why you always want to come prepared with your credit score.”

A scam for people with bad credit

As Ostroff tells us, “If you really do have bad credit, then certain dealers are only too happy to help you get behind the wheel, by claiming the bank requires buying an extended warranty.”

Sounds believable, right? This is what is called the forced warranty scam, “And violates regulations of the Federal Trade Commission. But when you think about it, if you’ve got poor credit, why would a bank want you to add 3 - 6 thousand dollars on top of the loan?” Ostroff asks.

We will revisit some of the many tips that Ostroff shared with us in a future story. CarBuyingTips.com is just filled with tons of really useful and interesting material for anyone buying, selling, financing or insuring a vehicle.

Dennis Beaver Practices law in Bakersfield and welcomes comments and questions from readers, which may be faxed to 661-323-7993, or emailed to Lagombeaver1@Gmail.com. And be sure to visit www.dennisbeaver.com.

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