What Is Floor Plan Interest

With a floor plan the initial investment needed to buy a particular unit is a fraction of the vehicle s actual purchase price.

What is floor plan interest.

What you don t realize is that like most new car dealers a floor plan was used to finance the cars. Interest rate floors are utilized in derivative contracts and loan. Simply it is a way for an auto dealer to use a lender s funds to finance the cars and until each of them is sold the lender holds title to the cars. Floor plan lending is a form of inventory financing for a dealer of consumer or commercial goods in which each loan advance is made against a specific piece of collateral.

Floor planning is a form of retailer financing for large ticket items displayed on showroom floors or lots. Example 1 record the accrual of floorplan interest for the current month in the amount of 9 183. Account 076 interest floorplan is es tablished to record the interest charges on vehicles in inventory financed under the dealership s floorplan line of credit. A business can deduct its business interest only to the extent of the sum of its business interest income 30 of its adjusted taxable income and its floor plan financing income.

As soon as that vehicle sells to a consumer floor planning dealers have the ability to immediately realize profits pay back the initial value of the loan plus interest and fees and had the flexibility to keep their funds working for their dealership.