Finance Reserve
Definition
Profit earned from marking up the lender's approved buy rate before presenting the contract rate to the customer.
Why It Matters
Finance reserve is a significant profit center for F&I departments. Understanding rate markup regulations and maintaining compliance while maximizing reserve is critical for ethical F&I management.
Examples
- If the buy rate is 5.0% and you present 6.5%, the 1.5% difference generates finance reserve
- Average finance reserve ranges from $500-$1,500 per financed unit depending on term and amount financed
Related Terms
Buy Rate
The interest rate approved by the lender before any dealership markup is applied.
Rate Markup
The difference between the lender's buy rate and the final contract rate offered to the customer.
Backend Gross
Total profit generated in the finance office per retail unit, including products and finance reserve.