Dealer Reserve (Yield Spread)
Category: finance
The profit a dealership makes by marking up the interest rate on the loan they originate for a customer.
If the bank approves your auto loan at a base rate of 5%, the dealer might quote you 6.5%. The dealer keeps the 1.5% difference as "dealer reserve." This is a standard and legal practice that represents a major portion of dealership bottom-line revenue.
Common Examples
- We secured our own financing through the credit union to avoid paying the dealer reserve markup on our interest rate.
- The F&I manager gets a commission based on how much dealer reserve spread they successfully negotiate on the contract loan.