Rate Markup
Definition
The difference between the lender's buy rate and the final contract rate offered to the customer.
Why It Matters
Rate markup generates finance reserve, which is a significant profit center for F&I departments. Understanding markup limits and compliance requirements is critical for ethical F&I management.
Examples
- If the buy rate is 5.0% and the contract rate is 6.5%, the rate markup is 1.5%
- Rate markup must comply with state and federal regulations to avoid legal issues
Related Terms
Buy Rate
The interest rate approved by the lender before any dealership markup is applied.
Finance Reserve
Profit earned from marking up the lender's approved buy rate before presenting the contract rate to the customer.
Backend Gross
Total profit generated in the finance office per retail unit, including products and finance reserve.