With a floorplan line of credit (sometimes referred to as a “floor plan”), in addition to fees and interest, a dealer may be asked to make a curtailment payment. Let’s talk about curtailments: what they are in the context of floorplan financing, why payments get made, and the restrictions and special circumstances that can surround them.
Definition of a floorplan curtailment
Generally speaking, a curtailment is a payment a dealer makes to the floorplan lender that reduces the outstanding balance on the loan, and which is required by the lender in certain circumstances. These payments are a part of the terms agreed between a dealer and a floorplan company.
Why make a curtailment payment?
A curtailment payment often occurs when the principal is due on a vehicle. At the end of a loan’s initial term, if a vehicle hasn’t sold yet, a dealer may have the option to curtail the vehicle to essentially get an extension. For example, after one term of 60 days, a dealer might pay a predetermined percentage of the remaining principal and all fees and interest to get another 60-day term. Curtailment payments are also often required by the floorplan lender.
Restrictions on loan curtailment
When curtailment payments are required, as well as the amounts required, will vary from floorplan company to floorplan company.
This is all determined during the contracting process between borrower and lender. It’s important for dealers to ensure there are no surprises here—that unexpected payments aren’t triggered, and that they aren’t planning to make payments that aren’t allowed.
Different floorplan companies will have their own guidelines regarding curtailment payments. Some may even make special allowances for eligible dealers with unique programs. For example, with AFC’s Principal Pass program, a dealer can make a term-extending curtailment without having to make a principal paydown at that time.
Disclaimer: 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.