Floor Plan Financing

Floor plan financing is a specialized loan arrangement that provides auto dealerships with the capital they need to purchase vehicles from manufacturers or auctions and keep them in inventory until they are sold. Because dealerships often carry hundreds of vehicles at a time, buying them outright would require enormous amounts of cash.

Instead, lenders - often banks or the manufacturers’ own finance arms - provide revolving credit lines known as floor plan financing. Dealers draw on this credit to acquire inventory, then repay the loan as vehicles are sold.

Interest accrues daily on unsold vehicles, incentivizing dealers to move inventory quickly. Manufacturers sometimes subsidize floor plan interest for a limited period, such as the first 30 to 90 days, to ease the dealer’s burden.

For dealerships, floor plan financing is essential to maintaining adequate stock and meeting consumer demand, but it also creates pressure to sell vehicles before financing costs eat into profits. For lenders, floor plan loans are relatively secure because the vehicles themselves serve as collateral.

From the consumer’s perspective, floor plan financing is largely invisible, but it explains why dealerships are motivated to clear lots during sales events and offer incentives. Understanding floor plan financing sheds light on dealership behavior, pricing strategies, and the urgency to move vehicles, especially as interest costs mount on aging inventory.