How to Check the Dealer's Interest Rate

-Often, dealers will take a small deal on the Front-End knowing that they will have this income in the “Back-End”.

The main catalyst to the "F&I" departments profitability is the interest rate (or the Money-Factor on a lease contract). During the earlier negotiation, the “Desk” will almost always calculate the customer's payment with an interest rate or money-factor that is higher than the dealer's rate (the Buy-Rate). This provides the “F&I” manager a “Leg” in the payment that will help them sell products and services. Also, this higher rate can simply be used as pure profit for the dealer.

If the “F&I” Manager uses the rate as pure profit (Finance-Reserve), they will run the risk of having to refund it back to the bank if the customer pays off the loan early. For example, the “F&I” Manager received $1000 in profit from the rate and then one month later the customer pays the loan off with cash. The dealer will then have to refund that $1000 profit.

Sometimes, they will make the deal and then instruct the customer to not pay-off the loan, insuring that they receive this pure profit from the rate. This is not legal. Dealers can not make the deal contingent on the customer using their financing.

The “rate” (finance-reserve) income works the same way on a lease agreement. Except instead of the dealer making their profit from the interest rate, they make it from the money-factor. These “back-end” profits from leases can be massive, especially on more expensive vehicles. Keep in mind, on a lease the dealer does not disclose the money- factor and they are not required to refund the finance-reserve if the customer pays off the lease early.

Example of dealer profit (Finance Reserve) created from the interested rate.