how does the car dealership make money when they offer 0% APR?

Question

It's possible, but how?

Answer 1

You have a misconception here. The dealers don't offer the 0% financing, the auto maker does. The pricing gets a bit tricky but let me explain it.
the factory marks up the cars after they are built and sell them to the dealers. The dealers then have an MSRP (manufacturer suggested retail price) known as the window sticker, that gives them about a 15-20% mark up. Using round numbers, if a window stickers says the vehicle costs $20,000, the dealer paid about $16,000 for it. The factory also has a thing called "holdback" which is a percentage they keep on each car that they can kick back to the dealer, as they reach a certain volume of sales or if it is a slow seller and they want the dealer to sell it for a lower price. The factory needs to trun over inventory since cars are being built all the time.
The factory makes money on a 0% deal by simply turning inventory into dollars, plus whne they offer the 0% financing they will normally not pay the dealer as much of the holdback money so they make their profit that way. Also note, they carry their own financing using their own money so they control costs.

Answer 2

Car dealerships make their money on the markup on the cars. Say that the sticker on a certain car is 20,000. The odds are good that the car only cost the dealership something like 15,000, and if it is a car in high demand, they might make a GREAT deal more, as some dealerships have bigger markups than others.

This is why dealerships can "play with the price" when people come in to buy new cars. They can take a bunch of money off and still make money because the markup is so high.

Also, those advertised 0% APR only apply to certain individuals.

Answer 3

I use to sell cars so here are a few tips. Many of the banks that work with dealerships will give you good interest rates depending on credit scores. Putting money down or having a trade in will help when going through a dealership. I would recommend the dealership because they have many banks to choose from and you can often times get GAP insurance.. Try and pick a car that is newer with lower miles, banks like these more. Personal banks dont always make the car buying experience easy. Many times they want to see the cars first and you need to fill out more paperwork. Dealership banks are easier. The dealerships dont tack on extra fees, just make sure if you dont understand part of it ask your sales man or the finance person they will explain it to you Hope this helped.

Answer 4

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Answer 5

Let me start off by saying that I am a Finance Director at a car dealership, and I have held this position for 5 years.
1. Dealers do not offer the 0% financing (usually) it is the manufacturer that offers the incentive.
2. Note that it is an incentive so you are probably giving up a rebate to get the 0%
3. Dealers make their profit in the mark up in the car. Now the mark up depends on the brand of car you choose to buy. Typically domestic cars have more mark up than foreign. Dealers do not make as much profit on "new cars" as we do on "used cars". The reason we don't make as much on new cars is because a customer can go to any new car dealer and buy the exact same car.
4. The best thing to do is find the car you want to buy and do lots of research on the internet from several different websites (ie, yahoo, edmunds.com, kbb.com are all good sites to get good info). Dealers make the most amount of money from people come in that aren't prepared. Do your homework!!!
5. Lastly, dealers are in the car business to make money. So if you want to negotiate a new car, always negotiate from dealer invoice not the MSRP . Dealers also make some profit from holdback, but holdback is there to help cover expenses (such as car wash, full tank of gas, interest paid while car was on the lot)Dealers have to make some profit ( a fair deal is 1-2% over invoice), just make sure they don't make more than their fair share on you.

Answer 6

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RE:
how does the car dealership make money when they offer 0% APR?
It's possible, but how?

Answer 7

Its generally not the dealership offering that low of an interest rate, its the cars manufacture. Dealerships make a large portion of their income from the service and parts departments.

Answer 8

They mark up the price. Then, they'll offer to sell you an extended warranty (rip off) and they may even hope that you, dear borrower, will default on the loan, they'll resell the car and still sue you for the money you defaulted on. Not only that, they'll entice you to have service and repairs done at the dealership where services are overpriced.

Hey, everybody's trying to make a buck! :)

Answer 9

The money is made on the price of the car. When a customer requests 0%, the customer pays full MSRP of the vehicle and the dealer uses the excess money to buy down the rate. Its not always the best option.

Answer 10

The dealership makes their money off the sale of the vehicle, the difference between what they pay and what they sell it for. You can pay cash and not finance at all, and they still make a pretty good profit on the sale.

Zero percent finance always has the small print disclaimer too. "on approved credit" and only those with the very best credit would be approved. then it's restricted to a time period. "Zero percent financing for X months" after which it goes up to the normal percentage, or more.