F&I Glossary

  • 1+ / Commission: A program designed to incentivize dealerships to sell more of the provider’s finance and insurance (F&I) products. Dealers receive a fixed dollar amount per contract sold, with additional commissions for selling multiple products.
  • 831(b) Automotive Company: A captive insurance company specializing in providing insurance coverage for the automotive industry, electing tax benefits under Internal Revenue Service (IRS) Code 831(b). These companies enjoy tax advantages by electing to be taxed only on a portion of their premiums, allowing them to retain more capital for underwriting and investment purposes.
  • Acquisition Fee: A fee charged by leasing companies to initiate a lease contract, covering administrative costs associated with processing the lease agreement.
  • Additional Dealer Markup: An additional charge added to the vehicle’s price, usually on high-demand vehicles, representing the dealership’s markup or profit margin beyond the manufacturer’s suggested retail price (MSRP).
  • Actual Cash Value (ACV): The cash value of a vehicle and its condition during appraisal for trade-in or insurance purposes, determined by factors such as depreciation, mileage, and market demand.
  • Administrator: A third-party company that provides administrative support and management services to auto dealerships for F&I products, handling tasks such as claims processing, customer service, and compliance management.
  • Affiliated Reinsurance Company (ARC): A company affiliated with a car dealership that provides reinsurance for the dealership’s F&I products, helping to manage risk and increase profitability by assuming a portion of the insurance liabilities.
  • Allocation: Allocation refers to the process through which vehicles are distributed from an Original Equipment Manufacturer (OEM) to its dealerships. The specifics of allocation methods and criteria vary among different OEMs. Essentially, allocation determines the new vehicle inventory that an OEM permits dealerships to acquire. In some cases, allocation may involve a selection of vehicles that OEMs require dealers to accept rather than allowing dealers to choose freely based on their preferences and market demands.
  • Annual Percentage Rate (APR): The annualized interest rate on a loan or credit, reflecting the total cost of borrowing, including interest and fees, expressed as a percentage of the loan amount.
  • ASE Certified Technician: An ASE Certified Technician is a professional automotive technician who has obtained certification from the National Institute for Automotive Service Excellence (ASE). ASE certification is a widely recognized standard in the automotive repair and service industry, indicating that the technician has demonstrated a high level of competency and expertise in various areas of automotive repair and maintenance. To become ASE certified, technicians must pass rigorous exams covering specific automotive systems and components, such as engine repair, brakes, suspension, and electrical systems. ASE certification is a testament to the technician’s skills, knowledge, and commitment to excellence in automotive service.
  • As Is: refers to the condition of a vehicle at the time of sale, indicating that the seller offers no warranties or guarantees regarding the vehicle’s condition, performance, or fitness for a particular purpose. When a vehicle is sold “As Is,” it means that the buyer accepts the vehicle in its current state, with all faults, defects, and issues, and assumes full responsibility for any repairs or maintenance needed after the sale. Essentially, the seller is absolved of any liability for problems that may arise with the vehicle post-sale. Buyers are encouraged to inspect “As Is” vehicles thoroughly and consider obtaining independent inspections or assessments before making a purchase decision.
  • Average Days to Turn (ADT): The average number of days it takes for a dealership to sell a vehicle from the time it enters inventory until the time of sale, reflecting inventory management efficiency and market demand for specific models.
  • Back End/Fixed Operations: Departments such as parts, service, or detail, located at the rear of the dealership, responsible for vehicle maintenance, repairs, and aftermarket services.
  • Balloon Financing: A financing arrangement that involves making smaller monthly payments throughout the loan term, with a large, lump-sum payment (balloon payment) due at the end, offering lower initial payments but requiring a substantial final payment.
  • Borrowed Car Agreement: BCA or BVA (Borrowed Car Agreement) – In car dealership terminology, a Borrowed Car Agreement (BCA) or Vehicle Agreement (BVA) is a contractual arrangement that permits a customer to take possession of a new or used vehicle for an extended test drive period, typically overnight or for a few days. The BCA outlines the terms and conditions of the test drive, including responsibilities, liabilities, and any restrictions imposed by the dealership. It is essential for both the customer and the dealership to carefully review the BCA to ensure mutual understanding of the agreement’s terms and conditions before proceeding with the test drive.
  • Business Office: The Finance & Insurance Office (F&I Office) – Referred to as “The Box” in dealership jargon, the Finance & Insurance Office is the department where customers finalize their vehicle purchase transactions. In this office, customers are presented with various documents to sign and are offered aftermarket products.
  • Business Development Center (BDC): A center within a dealership handling customer inquiries, appointments, and problem resolution, aimed at improving customer service and sales opportunities.
  • Black Book Value: The wholesale value of a vehicle determined by Black Book, a leading automotive valuation guide used by dealerships, wholesalers, and lenders to assess trade-in and auction prices.
  • Blue Book Value: The value of a vehicle determined by Kelley Blue Book, a reputable pricing guide used by consumers, dealerships, and insurance companies to assess the fair market value of vehicles.
  • Captive Finance Company: A Captive Finance Company is a financial subsidiary established by an automotive manufacturer or dealership to provide financing services to customers purchasing vehicles from the manufacturer or dealership’s brand.
  • Closed-End Lease: A type of vehicle lease that limits the lessee’s financial responsibility to the lease term, allowing them to return the vehicle at the end of the lease with no further obligations, except for any excess mileage or wear and tear charges.
  • Contractual Liability Insurance Company (CLIP): An insurance policy designed for the automotive industry, protecting companies from financial losses arising from contractual obligations, such as warranties, indemnification agreements, or service contracts.
  • Controlled Foreign Corporation (CFC): A foreign subsidiary owned or controlled by U.S. taxpayers, participating in underwriting and investment income for automotive F&I products, oen established in jurisdictions with favorable tax regulations.
  • Certified Pre-Owned (CPO): Used vehicles that have undergone a thorough inspection, meet specific quality standards, and often come with extended warranties or other benefits provided by the manufacturer or dealership, offering consumers a reliable alternative to new vehicles.
  • Customer Service Index (CSI): A metric measuring customer satisfaction in the automotive retail industry, based on post-purchase surveys, dealership interactions, and service experiences.
  • Dealer Trade: An arrangement between dealerships to exchange vehicles from their respective inventories to fulfill customer requests, optimize inventory levels, or acquire specific models or trims not available locally, facilitating sales and customer satisfaction.
  • Dealer Warranty: A warranty provided by the dealership to cover certain components or repairs beyond the manufacturer’s warranty period, offering additional assurance and peace of mind to customers, often included in dealer backed certified pre-owned (CPO) vehicle programs.
  • Deal Jacket: A folder containing documents related to the purchase and sale of a vehicle, including contracts, warranties, financing agreements, and service records, providing a comprehensive record of the transaction.
  • Depreciation: The decrease in the value of a vehicle over time due to factors such as age, mileage, condition, and market demand, affecting resale or trade-in values and influencing leasing costs and insurance premiums.
  • Desking a Deal: The process of presenting options to a customer to finalize a deal, including pricing, financing terms, and add-on products, often conducted by sales managers or finance managers.
  • Destination Charge: A charge included in a car’s MSRP to cover transportation costs from the factory to the dealership, reflecting logistical expenses associated with vehicle delivery.
  • Deductibles: Amounts paid by the customer for repairs stipulated in the contract, typically applied to insurance policies or service contracts, representing the portion of the repair costs the customer is responsible for before coverage kicks in.
  • Direct Lender: A financial institution or lender that provides vehicle financing directly to consumers, bypassing the dealership’s finance department, offering competitive interest rates, loan terms, and preapproval options, streamlining the purchasing process.
  • Disposition Fee: A fee charged to lease customers upon returning a leased vehicle, covering administrative costs associated with inspecting, processing, and preparing the vehicle for resale or lease return.
  • Documentation Fee: A fee charged by dealerships to offset non-revenue-producing staff costs, covering expenses related to paperwork, document processing, and administrative tasks associated with vehicle sales.
  • Early-Termination Fee: A fee charged to lease customers for ending their lease early, compensating the lessor for lost income and residual value, as well as administrative costs associated with terminating the lease agreement prematurely.
  • Earned Premium: The premium collected by the insurance company for the expired portion of a policy term, reflecting the portion of the premium that corresponds to the coverage period already provided.
  • Excess Wear Charge: Charges for damages beyond normal wear and tear on leased vehicles, assessed at the end of the lease term, covering repair costs for excessive damage or wear not covered by the lease agreement.
  • Facultative Reinsurance Coverage: Coverage purchased by a primary insurer to cover specific risks in its book of business, providing additional protection beyond standard policies for high-risk or unusual exposures.
  • Finance & Insurance (F&I): The department within a dealership responsible for arranging vehicle financing and offering insurance products to customers purchasing or leasing vehicles, generating additional revenue through finance charges, product sales, and commissions.
  • Finance Reserve: The additional interest rate markup earned by dealerships through vehicle financing arrangements, representing a percentage of the loan amount or the difference between the buy rate and the contract rate, contributing to dealership revenue.
  • Fleet Sales: Vehicle sales made to corporate or commercial customers, rental car agencies, government entities, or organizations purchasing multiple vehicles for business use, offering volume discounts, specialized financing, and tailored service agreements.
  • Floorplan: Financing borrowed by the dealership to purchase vehicle inventory, allowing dealers to maintain a stock of vehicles for sale, with the inventory serving as collateral for the loan.
  • Front End/Variable Operations: Departments such as sales, finance, and leasing, located at the front of the dealership, involved in customer interactions, revenue generation, and variable expenses.
  • Front F&I Commission: Commission earned by the dealer for selling a contract, representing a percentage of the finance charges or insurance premiums collected, often used as an incentive for F&I managers to maximize sales and profitability.
  • Guaranteed Asset Protection (GAP): In the event of a total loss, GAP coverage pays the difference between a vehicle’s value determined by a client’s insurance company and what is owed to the lienholder, protecting borrowers from financial loss in the event of theft or total loss.
  • Holdback: A portion of the vehicle’s sale price retained by the manufacturer and later reimbursed to the dealership, serving as an incentive for dealers to sell vehicles and cover operational expenses, such as advertising and overhead costs.
  • House Deal: A sale made by the dealership’s management without commission to a salesperson, often for internal purposes or special circumstances, facilitating transactions outside of the regular sales process.
  • Indirect Lender: An indirect lender refers to a financial institution or lending entity that provides financing for automotive purchases through intermediaries such as dealerships. Instead of dealing directly with borrowers, indirect lenders work with dealerships to offer loans and financing options to customers. Dealerships act as intermediaries between the borrower and the lender, facilitating the loan process. Indirect lenders often specialize in automotive financing and work with a network of dealerships to extend credit to consumers purchasing vehicles.
  • Invoice Price: The amount a dealership pays the manufacturer for a vehicle, including base price, optional equipment, and destination charges, serving as the starting point for negotiations between dealers and customers.
  • Lease Buyout: The purchase of a leased vehicle by the lessee at the end of the lease term, requiring payment of the residual value or predetermined purchase price specified in the lease agreement, allowing lessees to retain ownership and avoid lease return charges.
  • Limited Warranty: A manufacturer-provided warranty with specified terms and duration, covering certain defects or issues during the warranty period, offering protection against mechanical failures and faulty workmanship.
  • Loss Occurring Coverage: Reinsurer pays for losses incurred during the reinsurance contract period, providing financial protection to the ceding company for covered losses arising during the policy term.
  • Loss Ratio: The ratio of total losses paid out on claims versus total premiums earned, used to assess the profitability and risk of insurance policies, with lower ratios indicating beter underwriting performance and risk management.
  • Maintenance Schedule: The manufacturer-recommended timetable for servicing, inspecting, and maintaining a vehicle’s components, fluids, and systems, based on time intervals or mileage thresholds, ensuring optimal performance, reliability, and longevity over the vehicle’s lifespan.
  • Manufacturer Certification: The process by which vehicle manufacturers certify dealerships and technicians to meet specific standards, training requirements, and service protocols for repairing, maintaining, and selling certified pre-owned (CPO) vehicles, ensuring quality and consistency.
  • Market Adjustment: A charge or discount applied to the MSRP based on demand, supply, or market conditions, reflecting adjustments in vehicle pricing to align with market trends and consumer demand.
  • Market Day Supply (MDS): The number of days it would take to sell the current vehicle inventory, indicating inventory turnover rate and market demand, influencing pricing strategies and inventory management decisions.
  • Menu Selling: A sales methodology presenting various products along with vehicle purchases, offering customers a menu of optional products and services, such as extended warranties, maintenance plans, or protection packages, enhancing transparency and choice in the sales process.
  • Monroney Price Label: A window sticker detailing vehicle information and MSRP, including manufacturer’s suggested retail price, optional equipment, fuel economy ratings, and standard features, providing consumers with pricing transparency and vehicle specifications.
  • Non-Controlled Foreign Corporation (NCFC): An offshore insurance company not controlled by a U.S.-based dealership or F&I provider, offering reinsurance solutions and risk management services for automotive F&I products, often established in jurisdictions with favorable regulatory environments.
  • Non-Proportional Reinsurance: Also known as excess of loss reinsurance, where the reinsurer pays for losses beyond the retention limit, providing financial protection to the ceding company for catastrophic or high-severity losses.
  • Obligor: An entity legally obliged to provide a benefit or payment to another, often referring to warranty or insurance coverage providers, assuming responsibility for fulfilling contractual obligations to policyholders or customers.
  • Obsolete Parts: Parts in stock with no demand or chance of sale, often resulting from discontinued models or changes in vehicle technology, requiring inventory management strategies to minimize losses and maximize space utilization.
  • Open-End Lease: A type of vehicle lease that allows the lessor to assume residual value risks at the end of the lease term, requiring the lessee to pay any shortfall between the residual value and the actual vehicle value, offering flexibility and potential cost savings.
  • Out-the-Door Price: The total cost to purchase a vehicle, including taxes, fees, and other charges, representing the final price paid by the customer to drive the vehicle off the dealership lot, inclusive of all associated costs.
  • Per Vehicle Retail (PVR): The estimated value of a vehicle at the retail level, used to assess profitability and performance in vehicle sales, indicating the average revenue generated per vehicle sold by the dealership.
  • Pre-Delivery Inspection (PDI): An inspection of a vehicle before delivery to the customer, ensuring it meets quality and safety standards, including checks for mechanical defects, cosmetic imperfections, and proper functioning of accessories and features.
  • Proportional Insurance: A reinsurance agreement obligating the reinsurer to share a percentage of losses, with premiums and claims proportional to the ceding company’s exposure and risk, providing balanced risk management and financial protection.
  • Rebates and Incentives: Cash discounts, promotional offers, or special financing deals provided by vehicle manufacturers, dealerships, or lenders to incentivize vehicle purchases, reduce prices, or lower financing costs for customers, stimulating sales and clearing inventory.
  • Registration Fees: Charges imposed by state or local authorities for registering, licensing, and titling a vehicle, covering administrative costs, taxes, and fees associated with vehicle ownership and operation, varying by jurisdiction and vehicle type.
  • Repair Order (R.O.): A document created by the service advisor when a car is brought in for service, detailing the work to be done and associated costs, providing a record of repairs, maintenance, and customer communication for the service department and customer reference.
  • Repossession: The legal process by which lenders or financial institutions reclaim possession of a vehicle from borrowers who have defaulted on their loan or lease obligations, involving notifications, legal proceedings, and asset recovery efforts, to mitigate financial losses and protect creditor rights.
  • Reinsurance Reserve Requirements: The mandated minimum amount of reserves or capital that reinsurance companies must maintain, as stipulated by regulatory authorities or governing bodies overseeing the reinsurance of F&I (Finance and Insurance) products sold at car dealerships. These reserves are essential to ensure financial stability, effective risk management, and adherence to regulatory standards within the reinsurance sector of the automotive industry.
  • Residual Value: The expected value of a leased vehicle at the end of the lease term, used to calculate lease payments and depreciation, reflecting the anticipated market value of the vehicle based on factors such as depreciation rates, market demand, and vehicle condition.
  • Return on Investment (ROI): The ratio between net income and investment, used to evaluate the profitability of investments or business ventures, indicating the efficiency of capital utilization and financial performance relative to the initial investment.
  • Risk Sharing: The spreading of risk among insurers and reinsurers, allowing multiple parties to share the financial burden of potential losses, diversifying risk exposure and enhancing risk management capabilities.
  • Risk Transfer: An agreement where the reinsurer assumes responsibility for handling specific losses, transferring risk from the insurer to the reinsurer, providing financial protection and risk management solutions to the ceding company.
  • Service Contract: A contract covering repair costs beyond the manufacturer’s warranty, offering additional coverage for specified components and services, providing peace of mind and financial protection against unexpected repair expenses.
  • Service Drive: The area of the dealership where service advisors meet customers to discuss vehicle repairs and maintenance, facilitating customer interactions, service scheduling, and vehicle inspection and diagnosis.
  • Service Intervals: The recommended time or mileage intervals between vehicle maintenance or service tasks, such as oil changes, tire rotations, brake inspections, and fluid replacements, ensuring optimal performance, safety, and reliability over the vehicle’s lifespan.
  • Stop-Loss Insurance: Insurance protecting insurers against large claims, providing coverage after a certain threshold of claims has been exceeded, limiting financial exposure and stabilizing claims costs for the insurer.
  • Subprime Financing: Financing provided to borrowers with lower credit scores or limited credit history, often associated with higher interest rates and more stringent terms to mitigate the increased risk of default.
  • Subsidized Financing: Financing arrangements offering below-market interest rates, discounted loan terms, or deferred payment options provided by manufacturers, dealerships, or lenders to promote vehicle sales, stimulate demand, and facilitate affordability for customers.
  • Surcharges: Additional fees added to the cost of goods or services, covering expenses such as taxes, regulatory compliance, or operational costs, impacting the total price paid by consumers and affecting pricing strategies and consumer behavior.
  • Title: A document representing ownership of a vehicle, issued by the state’s Department of Motor Vehicles (DMV) or equivalent authority, confirming legal ownership and facilitating vehicle registration, transfer of ownership, and lienholder rights.
  • Total Loss: The condition of a vehicle deemed uneconomical to repair or restore to its pre-loss condition due to extensive damage or depreciation, often resulting from accidents, natural disasters, or theft, triggering insurance setlements based on the vehicle’s actual cash value.
  • Trade-In: The process of selling a vehicle to a dealership while purchasing another, allowing customers to apply the trade-in value towards the purchase price of a new or used vehicle, reducing the amount financed and overall transaction costs.
  • Treaty Reinsurance: An agreement between the primary insurer and reinsurer, where certain risks are ceded, providing broad coverage for a portfolio of risks and ensuring consistent reinsurance protection across multiple policies or lines of business.
  • Underwriting Profit: The profit earned by an insurance company after paying out claims and expenses, indicating the company’s financial performance in underwriting insurance policies, assessing risk accurately, and pricing policies effectively to generate sustainable profits.
  • Unearned Premium: The premium amount for the remaining time on an insurance policy, representing future liability for the insurer, reflecting the portion of the premium that corresponds to the coverage period yet to be provided.
  • Unearned Surplus: Surplus not part of earned surplus, representing excess funds or reserves beyond stated capital, providing financial stability and liquidity to insurance companies to meet policyholder obligations and regulatory requirements.
  • Upside Down: Also known as Negative Equity is owing more on a vehicle loan than the vehicle is worth, often occurring when the vehicle depreciates faster than the loan balance is paid down, creating negative equity and financial challenges for borrowers.
  • Vehicle Appraisal: The process of assessing the value of a vehicle for trade-in, sale, insurance, or financing purposes, considering factors such as make, model, year, mileage, condition, market demand, and comparable sales data, providing an accurate valuation for pricing and decision- making.
  • Vehicle Depreciation: The gradual decrease in the value of a vehicle over time due to factors such as age, usage, wear and tear, market demand, and technological advancements, impacting resale or trade-in values, lease calculations, and total cost of ownership.
  • Vehicle Identification Number (VIN): A unique 17-digit code assigned to each vehicle for identification purposes, used for registration, tracking, and vehicle history, providing detailed information about the vehicle’s origin, specifications, and ownership history.
  • Vehicle Inspection: The comprehensive assessment of a vehicle’s condition, performance, safety features, and compliance with regulatory standards, conducted by certified technicians, mechanics, or inspection agencies, ensuring quality, reliability, and compliance with buyer expectations.
  • Vehicle Service Contract: An agreement offering protection for repairs and services beyond the manufacturer’s warranty period, covering specified components and services, providing extended coverage and peace of mind to vehicle owners against unexpected repair expenses.
  • Virtual F&I (VFI): The presentation of F&I products to customers via video conferencing, allowing remote access to finance and insurance options, providing convenience and accessibility to customers unable to visit the dealership in person.