Floor Plan

A floor plan is a form of inventory financing specific to vehicle dealerships. A lender — typically a bank or a captive finance company — extends a revolving credit line to the dealer. When the dealer purchases a vehicle (at auction, from a wholesaler, or as a trade-in), they draw against the floor plan to fund that purchase. The vehicle itself serves as collateral.

Interest accrues daily on the outstanding balance. When the vehicle sells, the dealer pays down the floor plan balance for that specific vehicle — called curtailment — using the sale proceeds. The credit line revolves, allowing the dealer to buy new inventory as existing inventory sells.

Floor plan interest is a real carrying cost that accumulates every day a vehicle sits unsold. A vehicle purchased on a $15,000 floor plan at 8% annual interest costs approximately $3.29 per day in interest. After 90 days, that is nearly $300 in interest costs on top of any depreciation in the vehicle's value.

This is one of the primary reasons why days on lot is such an important metric for floor-planned dealers. Every day of delay on a sale is a day of interest cost. Dealers with floor plans have a financial incentive to price aggressively enough to sell quickly, rather than holding out for maximum margin.

Not all independent dealers use floor plan financing — many purchase inventory with their own capital. The decision depends on the dealer's financial situation, credit history, inventory scale, and risk tolerance.

Floor plans allow dealers to carry more inventory than their own capital would permit — but they introduce interest cost and require strict inventory management. A well-run dealer with floor plan financing and 30-day average days on lot may be more profitable than a capital-funded dealer with 60-day average days on lot and no interest costs.