Auto dealerships make money off financing by acting as intermediaries between customers and banks or credit unions. They earn fees or interest for arranging the loans. One common method is a dealer reserve system where the dealer has a minimum "buy rate" with the lender that they can then mark up to a higher "sell rate" shown to the customer. This markup is typically 2.5 percentage points or less.
Dealers can also make money by adding extra products like gap insurance, extended warranties, and service plans to the amount being financed. These add-ons increase the size of the loan as well as giving the dealer future business servicing the vehicle. Dealers additionally profit when taking trade-ins by buying low and reselling for more.
With 0% financing deals, dealers make no money on interest but use the offers to boost sales. By getting customers in the door, they sell more vehicles over time.
Secured loans use the car as collateral that the lienholder can take if payments are missed. Larger down payments cost more upfront but can save money over the loan term.
Dealers can easily profit $3,000 or more from just the financing alone by low-balling trade-in values. They then resell the trade-ins for higher prices.