When informed that some of our credit lines are offered at zero percent interest rate, many of our potential clients become suspicious. The common question is “how can banks make money with interest free loans?”

If a major lender offers zero percent should we really question it? After all, we have all at some time, complained about high interest rates!

Rest assured that a bank would not make an offer of this nature without making money. But how can they make money with interest free terms?  To answer this you have to change your perspective and look at the banking industry’s bigger picture.

Banks compete for your business and they each want to get their Visa or MasterCard into your wallet or purse and then have you using them. But that doesn’t answer the question of how banks make money with interest free credit cards.

The credit card holder is only one side of the bank’s profit center. The other side is the merchant that accepts your card for a purchase. Banks that issue Visa or Master Cards make a small commission of every purchase that is paid with their credit card.

Every time you charge an item or service the merchant receives payment from the issuing bank less a small processing fee. This fee varies depending on the merchant’s volume but is generally between 1% and 7%.

By offering a zero percent interest rate on credit cards the banks get millions of extra cards into circulation. These cards are used for travel, entertainment, gas, and purchases of endless types of merchandise and the bank receives a little piece of the action on every transaction.

Offering zero percent credit cards to corporations also makes good business sense for the banks. Corporations are more likely to make purchases for larger ticket items such as office equipment. They also probably issue cards to employees such as sales staff who will utilize them for business travel expenses.

For banks to offer zero percent interest credit cards is not such a bad idea after all. Rather than be suspicious of the offer take advantage of it. You can even transfer balances from higher interest cards to the zero percent ones.