What is a reserve account for indirect auto lending?

A reserve account for indirect auto lending is a financial mechanism used by lenders to manage risk associated with auto loans facilitated through dealerships. When a dealership sells a vehicle and arranges financing for the buyer, the lender typically pays the dealer a commission or "reserve" for the loan origination. This reserve account helps the lender cover potential losses from defaults, as well as incentivizes dealerships to work with the lender by offering competitive financing options to customers.