ELI5-How do banks make money when they offer 0% financing on vehicles?

Question

ELI5-How do banks make money when they offer 0% financing on vehicles?

In: Economics

Answer 1

Usually when a bank is offering 0% financing on anything — a car, a couch, a cell phone, etc. — the company selling the product is taking less profit to offer financing. They view it somewhat as a marketing expense, because it will likely draw people in for the sale.

So using a car for an example, you buy it for $30,000. They may have bought it for $23,000; paid the bank $3,000; incurred $2,000 of overhead costs (sales commissions, running the dealership, etc.); and kept $2,000 as profit.