Floor Plan Interest

Floor plan interest is the financing cost a dealership incurs on its vehicle inventory. When a dealership acquires new vehicles from the manufacturer or purchases used vehicles at auction, the inventory is typically financed by a floor plan lender — a bank, credit union, or captive finance company (such as Ally Financial, Bank of America Dealer Financial Services, or a manufacturer's own captive like Toyota Motor Credit or Ford Motor Credit). The lender pays the manufacturer or auction for the vehicle, and the dealer pays interest on the outstanding balance until the vehicle is sold and the loan on that specific unit is paid off, known as a “curtailment” or “payoff.”

How Floor Plan Financing Works

Floor plan financing operates as a revolving line of credit secured by the dealership's vehicle inventory. Each time a vehicle is acquired, the floor plan lender advances funds to cover the purchase. Each time a vehicle is sold, the dealer repays that specific advance (plus accrued interest) within a defined settlement window — typically 24–48 hours after the sale is booked.

The floor plan lender conducts periodic physical audits of the dealership's inventory to verify that every financed vehicle is still on the lot. If a vehicle has been sold but the floor plan has not been paid off — known as being “sold out of trust” — the lender may restrict or terminate the floor plan line, which is a serious operational and financial event for any dealership.

Typical Floor Plan Interest Rates

Floor plan interest rates are typically indexed to the prime rate or SOFR (Secured Overnight Financing Rate) plus a spread. As of 2025–2026, typical floor plan rates for well-capitalized dealerships range from prime + 0% to prime + 1.5%, which translates to roughly 7.5–10% annually depending on the interest rate environment. Smaller or higher-risk dealers may pay prime + 2% or more.

On a $50,000 vehicle, a floor plan rate of 8.5% costs the dealership approximately $350 per month in interest. If that vehicle sits for 90 days, the cumulative floor plan cost is over $1,050 — a direct reduction in front-end gross that must be absorbed when the vehicle is finally sold.

How Aging Inventory Increases Floor Plan Cost

Floor plan interest is a time-based cost: the longer a vehicle sits in inventory, the more interest accrues. This creates a compounding margin problem for slow-moving units. A vehicle that sits for 60 days costs twice as much in floor plan interest as one that sells in 30 days. At 90+ days, the floor plan cost alone may exceed $1,000–$1,500 per unit, eating directly into gross profit and often forcing a price reduction that further erodes the margin.

This is why inventory turn and days-to-market are so closely monitored in used car operations. Every day a vehicle sits unsold, the dealership is paying real dollars in holding cost — and floor plan interest is the largest component of that cost.

OEM Floor Plan Assistance

Many manufacturers offer floor plan assistance (also called floor plan credit or floor plan allowance) as a dealer incentive. This is a per-unit credit — typically $200–$500 per vehicle — paid to the dealer to offset floor plan interest expense on new inventory. Floor plan assistance is especially common during model-year changeovers or when manufacturers are pushing volume. When calculating true vehicle cost, dealers should net floor plan assistance against floor plan interest to determine the actual holding cost per unit.

Managing Floor Plan Expense

Disciplined floor plan management requires controlling both the volume and the velocity of inventory. Key practices include maintaining a target days-supply by model, pricing aging units aggressively before floor plan costs erode the margin entirely, negotiating competitive floor plan rates across multiple lenders, and paying off sold units promptly to avoid unnecessary interest accrual. Dealerships that integrate floor plan cost data into their desking and pricing decisions — understanding the true all-in cost of each unit including holding costs — make better pricing decisions and protect more gross per vehicle.

Related terms

• inventory turn
• days to market
• holdback
• front end gross

Learn more

• Car Dealership Overhead Costs
• Average Dealership Profit

Category: Finance