Buy here pay here vs Traditional dealer financing

Many People have questions about financing a vehicle at buy here pay here lots and using traditional dealer financing.  Common questions are:  What's buy here pay here financing?  What is the difference between direct and indirect lending?  Will buy here pay here help my credit?  Are buy here pay here lots bad?  This article will answer these questions and present pros and cons of both buy here pay here financing and traditional dealer financing.


Traditional Financing

Traditional financing for a vehicle generally consist of two types of lending:

  • Direct Lending
  • Indirect Lending

Direct Lending

In Direct Lending you fill out an application with a spedific lender and work directly with the lender.  All communications about the loan details take place between yourself, "the borrower", and the Lending institution.  Many people use their personal banks or credit unions as the direct lender when they are purchasing a vehicle.  The customer will take a bill of sale from the dealership to their chosen lender and apply for an auto loan in that amount.  Once the loan is approved the lender will then issue a draft or cashier's check for the customer to return to the dealership for the purchase of the vehicle.

Indirect Lending

In Indirect Lending you fill out an application that is shared with multiple lenders.  A third party, in this case the dealership, interacts and negotiates with the lender to secure financing for the vehicle being purchased.  The third party, Dealer, then presents the loan details including the APR to the borrower.  After completing paperwork for the purchase the Dealer will receive the funds directly from the lender.


Some borrowers have credit challenges or other stipulations from lenders that may cause it to be difficult to get approved for a traditional loan. In these instances a dealer offering "Buy Here Pay Here" financing may be the solution to getting a vehicle to drive.

Buy Here Pay Here Financing

With Buy Here Pay Here financing the dealer is both the seller of the vehicle and the lender.  Instead of the dealer receiving cash right when they sell the car customers payments are made directly to the dealer.  Some indicators that the car lot offers buy here pay here loans are phrases like "tote the note", "everyone is approved", "no credit checks", and "we finance" just to name a few.  Let's now take a look at how buy here pay here financing works and answer some commonly asked questions about it.

  • Are buy here pay here car lots bad?
  • Will buy here pay here help my credit?
  • Pros and cons of buy here pay here.

Are buy here pay here lots bad?

Buy here pay here dealers can help people that have challenges receiving traditinal financing to secure an auto loan.  These lots can be very beneficial for people that have found no other way to purchase a vehicle that they need.  This doesn't mean that a customer may not be sacrificing some of the benefits of using traditional financing though.

Cars on buy here pay here lots tend to be a little older than on lots offering traditional financing, you may be asked for larger down payments and receive higher interest rates, the interest may be pre-computed instead of simple interest loans, and overall higher cost can sometimes cause you to pay thousands of more dollars thna the vehicle is actually worth.

Will buy here pay here help my credit?

While making on time pyments can help improve your credit and increase your chances of being approved for future loans,not all buy here pay here dealers report your payments history to credit bureaus.  So, even if you are making all your payments on time and in full to them, you may not be buiilding your credit for future purchases.  You want to ensure that when you are purchasing from a buy here pay here lot that they are reporting to credit bureaus or may may be right back in the same situation when you get ready to make your next car purchase.

Pros and cons of buy here pay here loans

Pros of Buy Here Pay Here Loans

  • No Credit Required:  Most buy here pay here dealers sell and finance cars to customers with bad or no credit history. 

  • Car buying process is easy and simple:  Since the vehicle is being sold and financed by the same place the process is very straightforward.  You can make your payments to the dealer in cash instead of setting up automatic withdraws from a bank account or getting money orders to send to a lender.

  • Buy here pay here lots are generally more willing to take older trade-ins:  Since buy here pay here lots usually carry older vehicles they are more likely to accept trade-ins that are older and may have a few issues.

Cons of Buy Here Pay Here Loans

  • Higher down payment:  Often higher down payments are required with buy here pay here loans.  This may be difficult for borrows with no to bad credit.

  • High interst rates:  Buy here pay here loans can come with higher interest rates.  These rates can be more than 3 times more than rates through traditional financing, and can be around 20% causing payments to be high.

  • Payment schedule and requirements:  Buy here pay here dealers can require weekly or bi-monthly payments, and these payments hae to be made at the dealer location.

  • Limited car selection:  Once your down paymnt and financing is determined you may be given a small selection of the available cars on the lot that you can choose from.

  • Precalculated interest:  Instead of a simple interest loan that you can pay off early to save money on interest, the interest is pre-calculated in your loan amount so it's already included in the full amount of the loan.

Bottom Line of Buy Here Pay Here loans versus Traditional Dealer loans

Traditional Auto Loans require a credit check along with other factors that determine a borrowers credit worthiness.  Being approved for a traditional loan offers you lower interest rates, lower overall cost of financing a vehicle, and will help build your credit if you are making on time payments in full.  You ay also find a higher quality of vehicle selection through traditional loans since once you are approved through a third party you can choose any car in your budget from any seller.

Overall, if you are able to, obtaining a traditional auto loan is preferrable and more beneficial to you than going through a buy here pay here lot.  If you can't though make sure the buy here pay here lot you choose to purchase from reports your payment history to credit bureaus so that you are able to obtain traditional finacing in the future.

Shields OKC Auto Direct


7700 South Shields Blvd
Oklahoma City, OK 73149
Phone (405)548-5917

221 SW 29th Street
Oklahoma City, OK 73109
Phone (405)724-9147

Store Hours


Monday:9:00 AM - 6:00 PM
Tuesday:9:00 AM - 6:00 PM
Wednesday:9:00 AM - 6:00 PM
Thursday:9:00 AM - 6:00 PM
Friday:9:00 AM - 6:00 PM
Saturday:9:00 AM - 6:00 PM
Sunday:CLOSED