FoxWhat Is a Floor Plan Curtailment Fee?
A complete definition of curtailment fees — what they are, when they kick in, how much they cost, and how dealers avoid them by tracking days-in-stock.
A floor plan curtailment fee is a mandatory partial principal payment or penalty charge that a floor plan lender requires when a vehicle has been financed on the dealer's credit line for longer than a specified period — typically 45 to 90 days. It's designed to incentivize dealers to turn inventory quickly and reduce the lender's exposure on aging units.
How Curtailment Works
Short answer: Your floor plan lender sets time milestones (e.g., 45 days, 90 days). When a vehicle passes a milestone, you owe a percentage of the principal back to the lender immediately — on top of the interest you've already been paying.
When you finance a vehicle through a floor plan provider like NextGear Capital, AFC, or Kinetic Advantage, the lender pays for the car and you pay daily interest on that amount. But lenders don't want vehicles sitting on their line indefinitely — the longer a car sits, the greater their risk of depreciation and non-payment.
So floor plan agreements include curtailment schedules: at predefined time intervals, you must pay back a portion of the principal, whether you've sold the car or not.
Example: Curtailment on a $15,000 Vehicle
Vehicle: 2020 Nissan Altima, financed at $15,000
Floor plan rate: 8% annually ($3.29/day in interest)
45-day curtailment: 15% = $2,250 principal payment due
90-day curtailment: Additional 15% = $2,250 principal payment due
Total cash tied up by day 90: $4,500 in curtailment payments + $296 in interest = $4,796 out of pocket before you sell the car
Typical Curtailment Schedules
Short answer: Most lenders require 10–25% principal paydowns at 45–90 day intervals. Exact terms vary by lender and dealer agreement.
While every floor plan agreement is different, here's a common curtailment timeline:
| Days on Line | What Happens | Example ($15,000 car) |
|---|---|---|
| 0–45 days | Interest accrues daily. No curtailment. | $3.29/day = $148 in interest |
| 45 days | 1st curtailment: 15% principal due | $2,250 payment to lender |
| 46–90 days | Interest continues on remaining balance | $2.79/day on $12,750 balance |
| 90 days | 2nd curtailment: 15% of original principal | $2,250 additional payment |
| 90+ days | Some lenders require full payoff or buyout | Remaining $10,500 balance due |
Note: These are illustrative examples. Curtailment terms vary by lender (NextGear, AFC, Kinetic, bank lines) and by your specific agreement. Always check your floor plan contract for exact schedules.
Why Curtailment Fees Hurt Wholesale Dealers
Short answer: Curtailment fees force you to pay cash back to the lender on cars you haven't sold yet, tying up capital and reducing your buying power for new inventory.
Curtailment hits wholesale dealers in three ways:
- Cash flow drain: Paying $2,000–$4,000 back to the lender on unsold cars reduces the cash you have available to buy new inventory at auction. This directly limits your volume.
- Hidden cost per vehicle: Curtailment payments aren't always tracked as a cost of the vehicle, so dealers may not realize how much an aging unit actually cost them. The curtailment itself reduces your floor plan balance but represents cash you can't use elsewhere.
- Pressure to sell at a loss: When you know a curtailment is coming, you may sell the car to another dealer below your target price just to avoid the penalty. This turns a slow-mover into a guaranteed loss.
How to Avoid Curtailment Fees
The only reliable way to avoid curtailment fees is to sell vehicles before the deadline. This means knowing exactly how many days each vehicle has been on your floor plan line:
- Track days-in-stock per vehicle: Know which units are approaching 45, 60, and 90 days. Price aging vehicles aggressively before curtailment kicks in.
- Set internal alerts: Flag vehicles at 30 days so you have 15 days to move them before the first curtailment.
- Review inventory weekly: A 5-minute weekly review of days-in-stock prevents curtailment surprises.
- Use DMS software with floor plan tracking: FoxDMS tracks floor plan days-in-stock per vehicle automatically, making it easy to identify units approaching curtailment deadlines.
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FoxDMS tracks days-in-stock and floor plan interest per vehicle automatically. See which cars are aging before curtailment hits. $39/month, 14-day free trial.
Start Free TrialFrequently Asked Questions
What is a floor plan curtailment fee?
A floor plan curtailment fee is a mandatory partial principal payment or penalty that a floor plan lender charges when a vehicle has been on the dealer's credit line for longer than a specified period — typically 45 to 90 days. For example, a lender might require a 10–25% principal payment at 45 days and another at 90 days.
How much are curtailment fees?
Curtailment amounts vary by lender and agreement, but typically range from 10% to 25% of the vehicle's financed amount at each curtailment milestone. On a $15,000 vehicle, a 15% curtailment at 45 days would be $2,250 due to the lender. The exact terms depend on your floor plan agreement with providers like NextGear Capital, AFC, or Kinetic Advantage.
How do dealers avoid curtailment fees?
The primary way to avoid curtailment fees is to sell vehicles before the curtailment deadline — typically 45–90 days. This requires tracking days-in-stock for every vehicle on your floor plan. Dealers who use inventory management software with floor plan tracking can see which vehicles are approaching curtailment deadlines and price them aggressively to move before the penalty hits.
Which floor plan lenders charge curtailment fees?
Most floor plan lenders include curtailment provisions in their agreements. Major floor plan providers like NextGear Capital, AFC (Automotive Finance Corporation), and Kinetic Advantage all have curtailment schedules, though the specific timelines and amounts vary. Bank floor plan lines may have different terms. Always review your specific floor plan agreement for exact curtailment schedules.
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