An interest rate floor that has its rates reset in arrears and likewise paid in arrears. However, in practice, a lag of two business days (T+2) between the reset and the payment is commonly observed. In-arrears floors can provide investors with protection against interest rate decreases suffered by arrears swaps. Furthermore, investors facing a market with flat rates and expecting decreases of higher proportions than what is predicted by a corresponding yield curve may find in-arrears floors particularly instrumental.

Like a standard interest rate floor (vanilla floor), which is made up of a series of floorlets, an in-arrears floor can also be viewed as a bunch of in-arrears floorlets.