Dealer Reserve

Dealer reserve refers to the share of profit that dealerships earn from marking up the interest rate on a loan arranged through their financing partners. When a lender provides a buy rate, the dealer may increase it to establish the sell rate presented to the customer.

The difference between the two rates generates additional revenue, and a portion of that revenue is paid back to the dealer as reserve. For dealerships, this reserve income is a major incentive to steer customers toward in-house financing rather than encouraging them to seek external offers.

For lenders, dealer reserve serves as a distribution cost, ensuring their products remain attractive to dealer networks. For consumers, however, dealer reserve can mean higher interest rates and greater overall borrowing costs.

Transparency around dealer reserve is limited, and many consumers are unaware of its existence. Regulators have expressed concerns about discriminatory practices, as markup and reserve can sometimes result in different customers paying different rates despite similar credit profiles.

Some lenders and manufacturers have moved toward flat-fee models to replace reserve systems, promoting fairness and predictability. From the consumer’s standpoint, understanding dealer reserve reinforces the value of securing pre-approvals, comparing multiple financing options, and negotiating loan terms.

For the industry, it highlights the tension between profitability and consumer advocacy. Ultimately, dealer reserve is a behind-the-scenes component of auto financing that shapes interest rates and underscores the need for informed borrowing decisions.