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What is dealer reserve?

Updated: 9/15/2023
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14y ago

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Dealer reserve is a kickback paid to car dealerships by the finance companies (including those owned by car manufacturers) for bringing in new customers. Dealer reserve can be defined as interest points that usually constitute two to four interest points added to the interest rate, and can tack on thousands to the price of a car and increase one's monthly payments by $30, $50 or more. This is basically how it works: The car manufacturer, say Ford Credit, offers to finance someone's new car purchase for 15%, but the car dealer doesn't tell the customer that. Instead, they tell him that the lowest interest rate he qualifies for is 19%. Ford Credit sends the check equal to the 4% markup to the dealership as a commission. The customer gets to pay off the 4% dealer reserve without realizing he actually qualified for a 15% rate!

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