Car Dealers Roll Out Cheap Financing

It sounds like a bad commercial for a local car dealership: "These rates are so low, we're barely making money!" But more than three years after the recession threw car sales into a tailspin, many dealers have started offering loans at interest rates so low they don't make much of a profit -- and that's turning conventional car-buying wisdom on its head.

Not long ago, car dealerships were the last place you'd want to get a car loan. You could get a better deal at a bank. But today, with bank lending still tight, dealers' lending arms are stepping in with more of their own loans at much more attractive rates. The current average interest rate on a car loan is 5.9%, but the rates offered through dealers are much lower, at 4.2% on average, according to interest-rate trackers HSH Associates and Edmunds.com. Some dealers are offering loans at or near 0%. And unlike past low-interest financing offers, these rates are increasingly available on longer loans for a wider variety of cars, including luxury vehicles and across popular brands like Toyota ( TM: 82.01, -1.35, -1.61% ) and Honda.

For consumers, this means a dealership is suddenly a viable place to get a loan. "Nothing beats 0%," says Paul Taylor, chief economist at the National Automobile Dealers Association.

Indeed, the savings for consumers could be considerable. On the 2011 Toyota Camry sedan, with a base model price of about $20,000, consumers can get 0% financing for up to 60 months at some dealers. Put $2,000 down on a five-year loan (the average length of most auto loans) at 5.9% and you'll shell out $840 more in interest over the duration of the loan than a dealer-financed borrower who locks in 4.2% and around $2,820 more than a buyer who scores a 0% interest rate. (Find your monthly payments with our car loan calculator.)

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