Why are so many car lots doing 0% financing right now?


I understand that prices drop when demand drops but how do banks make money off a 0% interest loan?

In: Economics

it’s the car dealerships in house financing that’s offering the financing. they’re working together with the car dealership to move inventory. regular banks have nothing to do with this really.

Dealerships and companies in general, operate for profit but NEED cash. Even a profitable business goes bankrupt (stops operating) if there isn’t the cash available to pay salaries, rents etc etc. So if a dealership is holding inventory (not cash) and has regular expenses (needs cash), it makes sense for them to take losses to convert their non-cash assets into cash just to stay in operation. Of course, this is not sustainable in the long run, but it is what businesses do in a crisis in hopes that the situation improves.

Typically 0% (or otherwise low) APR financing have a caveat.

Usually you’ll see a really good deal for X amount of months, then it’ll jump back to a higher than normal rate for the remainder of the term.

The financiers that the lots work with are willing to take a short term loss for long term gain.