If you’re an independent dealer who is curious about financial floorplaning, you may find the jargon a bit confusing. To help, we’ve created a guide of the five most important floorplan financing terms you should know. Understanding these terms can help you decide if floorplanning would be a good fit for your dealership.*
Floorplan Financing
Floorplan Financing is a revolving line of credit that helps give independent auto dealers the financial flexibility to stock up on more vehicles and build their inventory without using their operating cash. Instead of spending your own cash on new inventory, you can use this financing to buy cars, trucks, RVs, motorcycles, or other vehicles. This can free up your cash flow, allowing you to quickly expand your inventory and use your money for other important business expenses.
Wondering about your options for floorplan financing programs through AFC? Check out our previous insights blog What is Dealer Floorplan Financing?
Curtailment
When a vehicle doesn’t sell in a set amount of time, a dealer may need to make a curtailment payment. This partial payment on the loan is required by some lenders to reduce the outstanding balance. Not all lenders allow curtailments, and those that do may have specific rules about when and how they can be made.
For example, a lender might require a dealer to pay a certain percentage of the remaining principal after 60 days. This payment could then extend the loan term for another 60 days. At AFC we offer unique options, including Principal Pass, which allows dealers to pay $0 in principal at curtailment on eligible units for a small one-team fee.
Title
The vehicle’s certificate of title—or just title—is a legal document that proves ownership. It’s issued by the state and includes details about the vehicle, like its year, make, and VIN, as well as information about the vehicle’s sale, such as the purchase, price and date.
When a dealer uses floorplan financing to buy a vehicle, often the title is held by the floorplan provider, not the dealer. Once the dealer repays the loan, the title is transferred to them.
Buydown
A buydown is a principal payment a dealer makes to a lender to meet financing requirements for a specific value.
For example, a dealer might buy a vehicle for $110,000, but their floorplan financing has a maximum limit of $100,000. To finance the vehicle, the dealer would need to put down a $10,000 buydown payment to bring the loan payment into an allowable range.
This can also apply when the vehicle has an existing lien and the total amount exceeds what the floorplan allows. In this case, the dealer would be responsible to pay down the principal to get the vehicle financed.
Advance Rate
Lenders often require collateral as a guarantee that the loan will be repaid. However, they typically won’t lend the full value of that collateral. This is especially true for assets like vehicles, whose value can fluctuate often.
To protect against a drop in value, lenders use an advance rate, which is the percentage of the collateral value they are willing to lend. This reduces their risk and ensures that they can recover the money they loaned. For dealers, a higher advance rate can be an important advantage leading to better interest rates or a larger loan amount.
Interested in learning more about floorplan financing terms? Check out our Dealer Floorplan Financing Glossary.
Ready to Accelerate Your Dealership’s Growth?*
AFC provides more than just floorplan financing; we offer tailored solutions designed to meet the unique needs of your business. Ready to get started? Check out this quick guide on how to apply for an AFC floorplan in three easy steps.
Have Questions? We’re Here to Help!
If you have any questions about the application process or how to get started, feel free to visit our Contact Us page.
Prefer to speak with someone directly? Call us at 1-888-335-6675, and we’ll be happy to assist you.
* Disclaimer: The description of terms in this post are general “laymans” explanations and contactal definitions may differ. Descriptions of AFC floorplans are for illustrative purposes only. Terms of AFC floorplan financing are subject to a final written agreement acceptable with AFC. AFC does not guarantee any results for floorplan financing and examples are for illustrative purposes only. Dealers should consult their own advisors to make independent business decisions regarding floorplan financing. “AFC” refers to Automotive Finance Corporation, Automotive Finance Canada Inc., and AFC Cal, LLC in their respective jurisdictions.
