Financing Tab (Buy Rate, Reserve and Settlement)

Buy Rate, Reserve, and Settlement
  • Many of the figures in the financing tab operate based on the deal’s Finance Charge and a proposed Finance Charge that is calculated from the Buy Rate, which is not visible in this tab (or anywhere in DM).
  • The Rate Charged in the Financing Tab simply shows the APR from the deal tab. The APR determines the Finance Charge, which is also in the deal tab.
  • The Buy Rate is the rate at which the contract is bought from the bank. This will be less than the APR. When a percentage is entered as the Buy Rate, this creates a different Finance Charge that is used in calculating the figures below the Buy Rate. Specifically, it creates a finance charge that would exist if the APR in the deal was this percentage, instead of what it actually is.
  • There is now the real finance charge and the imaginary finance charge, which was created from the Buy Rate. The Reserve Rate now operates based on the difference between these two values, the Finance Charge minus the imaginary finance charge.
  • The Reserve Rate is entered as a percentage. This percentage allocates this remainder (the difference between the actual finance charge and the imaginary finance charge) into the Settlement and Reserve Amount boxes respectively. The percentage entered puts that percentage of this remainder into the Settlement, and the rest goes into the Reserve Amount. For example if the Reserve Rate is 80%, then 80% of the remainder (described above) goes into Settlement, and 20% (what’s left) goes into the Reserve Amount box.
  • The key points are that Deskmanager uses the finance charge, and then the Buy Rate creates a separate Finance Charge that’s also used.                                
  • Please note that there has to be a Finance Company selected for this to function correctly.

Example
  • The Finance Company is a label, and It can affect the rates if it has a predefined information set.
    •  If the bank is the name of the Finance Company, and if they have a Reserve Rate, then it will automatically apply that rate.
    • The Buy Rate is the first field that is filled in. The APR is already filled in from the deal tab.
      • The Buy Rate is the amount that the bank is buying a contract for. It will be less than the APR because it creates a difference. 
      • For example, a 12% Buy Rate gives us the Finance Charge. Entering 10% in the Reserve Rate gives us a number that would be the Finance Charge if the deal was listed at 10%. The difference between these two values is calculated in the background.
      • That difference between the finance charge at 12% and the finance charge at 10% is what goes to the dealer.
    • In this example, the deal uses the 10%, calculates the Finance Charge in the background, and then calculates the difference.
    •  Now the difference is split between the Settlement and Reserve Amount.
    • If you enter a percentage in the Reserve Rate, it allocates that difference of the Buy Rate and Reserve Rate to Settlement and Reserve Amount.
    • For example, if we enter 100% in the Reserve Rate, then 100% of it is the Settlement Amount.
    • However, If the reserve rate is 50%, that means 50% goes to the Settlement Profit, and 50% goes to the Reserve, not Profit (as far as Deskmanager is concerned).
    • The Settlement is the amount the dealer receives upfront from the Finance Company.
    • The Reserve is an amount that is being held back by the Finance Company which the dealer  may get after the deal is done and closed. 
      • The Reserve Rate calculates the Settlement and the Reserve Amount, giving us the amount that you add to the Settlement.
      • For example, if you put 90% in the Reserve Rate, 90% of it is the Settlement. What is left goes to the Reserve.
      • The reason it shows that it's 90% of Reserve is because the Buy Rate and Reserve Rate were filled out correctly and a finance company selected.