Floor plan financing is a revolving line of credit secured by your inventory. The lender pays the auction, holds the title, and gets repaid with interest and fees when the car sells or when a scheduled paydown called a curtailment comes due. It is how a dealer with $60,000 in cash keeps $300,000 of cars on the lot.
What you'll get: how a floorplan line works mechanically, what a curtailment schedule does to your cash, a worked 90-day carry example you can check, what happens in a lot audit, and the four situations where flooring a car costs more than it earns.
Who it's for: independent used-vehicle dealers taking a first line, or dealers already floored who have never allocated interest back to individual VINs.
How does floor plan financing actually work?
You get approved for a credit line. Small independents commonly start somewhere in the low six figures, sized off your net worth, time in business, sales history and personal credit, with a personal guarantee attached. At the sale, you buy on the line instead of with cash. The lender pays the auction directly, takes the title as collateral, and opens a balance on that specific unit.
From that moment three clocks start. Interest accrues daily on that unit's balance. A curtailment calendar counts down to the first scheduled principal paydown. And the aging clock that governs your entire pricing strategy starts ticking, because the lender's terms and the market's patience run on the same days.
When the car retails, you pay that unit off. Contracts typically require payoff within a very short window after you receive customer funds, often measured in a day or two rather than a week. Miss it and you are sold out of trust, which is the single fastest way to lose a line.
Floor plan lenders for independent dealers
The national players focused on independent dealers are NextGear Capital, AFC, Westlake Flooring and Floorplan Xpress, plus regional and bank lines. The big ones are integrated directly into the auctions, which is convenient on buy day and consequential on the day a relationship goes bad, since your floorplan lender and your auction group may share a parent company.
Auction sourcing and floorplan lines go together for a reason. NADA reported that auction purchases supplied 21.9% of the used vehicles franchised dealers retailed in 2025, across 16,990 franchised light-vehicle dealerships. For a lot of independents the share is far higher, which means the line is not a convenience. It is the buying budget.
What a floorplan line costs: the whole stack
Rate is the headline and rarely the biggest number. Floorplan pricing is usually quoted as a spread over a benchmark, most often the bank prime rate. The Federal Reserve's H.15 release put the bank prime loan rate at 6.75% as of July 30, 2026, so a line quoted at prime plus 5.5 would be 12.25% APR that week and would move when prime moves. Ask your lender which index they use and whether the spread is fixed.
Then read the fee schedule, which is where the money actually is. Every lender publishes its own and they differ enough that a lower rate can lose to a higher one. The components to price out:
- Floor fee, charged per unit when the car goes on the line.
- Curtailment fee, charged at each scheduled paydown event.
- Extension or aging fees if you carry a unit past the normal term.
- Audit fees, charged per lot inspection, sometimes per unit inspected.
- Title and processing fees, per unit, on the way in and out.
- Late payoff and non-sufficient funds charges, which escalate fast.
- Annual line fee or minimum utilization charge, whether or not you use the line.
Do not accept a verbal summary. Get the current schedule in writing, in the version that applies to your program and your state, and price a representative car all the way through before you sign. Ask specifically how fees change when a unit ages, because that is where the schedule usually bites.
One piece of good news, and it is real: floorplan interest gets favorable federal tax treatment. Under 26 U.S. Code section 163(j), floor plan financing interest is added on top of the normal limit on deductible business interest, and floor plan financing indebtedness is defined as debt used to finance the acquisition of motor vehicles held for sale or lease and secured by that inventory. Talk to your CPA about how it interacts with the rest of your return, but the deduction itself is not in question.
Curtailments: the paydown calendar that runs your cash
A curtailment is a required principal reduction on a unit that has not sold by a certain age. Schedules vary by lender and by program, but the shape is consistent: a percentage of original principal comes due at set intervals, the percentage often escalates as the unit ages, and a fee rides along with each event. Your term sheet will state the exact days and percentages. Read them before you read the rate.
The thing to understand is that a curtailment is not a cost so much as a cash-timing event. The money you pay down is your principal coming back out of the car, but it leaves your account on the lender's schedule regardless of whether you sold anything that week.
Run the arithmetic yourself. $12,000 at 12.25% is $1,470 a year, or $4.0274 a day, so 60 days of interest is $241.64. At the curtailment the lender takes 10% of original principal ($1,200), the accrued interest ($242 rounded) and a $75 fee, which is $1,517 out of your account on day 60. The remaining balance is $10,800, so daily interest drops to $3.6247, and 30 more days adds $108.74. Ninety days of carry on one car: $351 of interest and $170 of fees, $521 all in.
Now scale it. Five units hitting the same day-60 curtailment in a slow week is a $7,585 cash call. That is the mechanism that puts otherwise healthy dealers in trouble, and it is why the curtailment calendar deserves a place on your cash forecast next to payroll and rent.
What one car costs by the day it sells
Carry is not linear, because curtailments reduce principal and interest steps down after each one, while fees step up. Here is the same worked example carried to day 150, with a second curtailment at day 120.
For context on how long is too long, Cox Automotive reported 47 days' supply of used vehicles in June 2026, with 2.14 million units on dealer lots. If the market clears in about seven weeks and your unit is at day 120, the floorplan is not your problem. It is the alarm.
Lot audits and being sold out of trust
The lender owns a security interest in cars it cannot see, so it comes and looks. An auditor arrives, often unannounced, and physically matches every floored VIN to a vehicle. Anything not on the lot needs a paper story ready on the spot: out for recon with a shop ticket, at your second location with an address on file, out on a demo with a log. "It's around here somewhere" gets written up as missing collateral, and a written-up unit usually triggers an immediate payoff demand. A pattern triggers a line review.
Sold out of trust is the serious one. The car sold, the customer's money hit your account, and the lender did not get its payoff inside the contractual window. Almost nobody does this deliberately. It happens because a title clerk was out sick, or because Friday payroll was short and Monday felt close enough. Lenders do not grade intent. An SOT finding freezes the line, accelerates balances and ends relationships, and because the major floorplan companies are tied to auction groups, losing the line can cost you your buying access too.
Here is the part dealers rarely realize: the customer is protected and you are not. Under UCC section 9-320(a), a buyer in ordinary course of business takes free of a security interest created by the buyer's seller, even if that security interest is perfected and even if the buyer knew about it. Your retail customer keeps the car. The lender's claim runs entirely at you and at your personal guarantee.
The operational fix is boring and absolute. Payoffs go out the same day funds land, no exceptions, and you keep one screen that lists every floored unit that is sold but not yet paid off. Nothing on that screen should be older than 24 hours. Keeping the title, the payoff request and the funding confirmation together in a per-deal document file is what turns that rule into something you can actually audit.
When not to floor a car
A floorplan is leverage, and leverage is neutral. It rewards inventory that turns and punishes inventory that does not. Four cases where cash beats the line:
- Cheap units. Fees are mostly flat per car, so a $95 floor fee plus a $75 curtailment fee on a $3,500 unit is a percentage of gross you will feel. Sub-$5,000 inventory generally wants to be cash.
- Segments that turn slowly on your lot. If your data says a body style averages 85 days, flooring it guarantees at least one curtailment and the carry that goes with it. Buy fewer of them or buy them with cash.
- When turn is already slipping. Adding floored inventory to fix a slow month compounds the problem, because the curtailment calendar fills up faster than the sales board does.
- When the line is your only cash buffer. Lines get reduced, repriced or pulled. If a 30-day payoff demand would end your business, you are over-floored regardless of what the approval letter says.
Track floorplan interest per VIN or fly blind
The statement arrives as one monthly number covering every floored unit, which is why almost no independent allocates it back to cars. That is the single most expensive reporting gap in the business, because the per-unit number is exactly what tells you which car to reprice this week and which one to wholesale before the next curtailment.
Doing it is simple: accrue daily interest per unit, add fees to the unit that caused them, and reconcile the sum against the lender statement every month. If the two do not tie, find out why before you pay it. Loturn accrues floorplan interest per VIN inside the live per-car profit ledger and posts it through to the accounting module, so the day a unit's projected gross goes negative shows up as a warning rather than a post-mortem. The costing framework it feeds is in how to calculate true per-car profit, and if you are sourcing from the lanes, dealer only auctions covers the buy-side fees that ride in on the same advance.
Questions dealers ask before signing
What do lenders require to approve a first floorplan line?
Expect an active dealer license, a physical licensed lot, your bond and garage liability insurance, two years of business and personal tax returns, current financial statements, bank statements, sales history and a personal guarantee. New dealers with thin history get smaller lines and tighter terms, which is the correct outcome. Build a payment record on a small line and ask for an increase after two clean quarters rather than arguing for a big number on day one.
Is floor plan financing worth it for a small dealer?
It is worth it when it buys units that turn inside your curtailment window and when you can cover the calendar out of cash flow. It is not worth it as a substitute for working capital. A useful test: if every floored unit sat 90 days, could you meet the curtailments without selling a car? If the answer is no, the line is too big or the inventory mix is wrong.
How is floorplan interest calculated?
Almost always simple daily interest on each unit's outstanding balance. Take the annual rate, divide by 365, multiply by the unit balance, then by days held. That is why every day matters and why a monthly average hides the units that are hurting you.
Can I floor a car I already own?
Many lenders offer some form of advance against inventory you bought with cash, sometimes called a cash-out or retail advance, usually at a lower advance rate and with the same curtailment mechanics. It converts equity into buying power. It also converts a car you owned outright into a car with a payoff date, so use it deliberately.
What happens if I cannot make a curtailment?
Call the lender before the date, not after. Lenders have workout options, extensions, partial payments, or moving a unit to a longer aging program, and every one of them is easier to arrange in advance. A missed curtailment with no phone call reads as distress and gets treated as distress. A phone call three days early reads as a dealer who is watching the calendar, which is the reputation you want when a month goes sideways.