Dealer Reserve

Dealer reserve is the difference between the rate a lender approves and the rate the dealer presents to the buyer. If a lender approves at 5 percent and the dealer presents 7 percent, the dealer earns the 2 percent spread. Lenders cap the maximum markup to comply with fair lending requirements.

Reserve income is a significant component of F&I back-end profitability. F&I managers need to understand each lender's buy rate, rate cap policies, and compliance requirements around dealer participation to maximize reserve income within legal guidelines.