• by Karl Greenberg , April 20, 2010

Automakers are throwing cash on the hood and consumers are biting. Last month, according to Edmunds.com, sales of new vehicles purchased with zero-percent financing hit record levels -- at least since 2004, when Edmunds came on the scene.

Arguably, the only time incentives would have been higher was right after Sept. 11, 2001 -- when after the attacks in New York and Washington, General Motors launched "Keep America Rolling" and others followed suit.

The firm says the higher rate of incentive sales mean credit is loosening, as a quarter of all transactions financed in March were approved for zero-percent financing. Per the firm, more than 22% of financed new cars had zero finance deals, versus just 13% in the month a year ago. Edmunds says that most recent high-water mark for the proportion of sales financed with zero percent offerings in a given month was 21% of new-vehicle sales in July 2006.

It is also likely that the big gains in zero-percent deals came by way of Toyota, 71% of whose sales last month had zero-percent APR, which -- per Edmunds -- doubles the previous Toyota record of 39% in August last year.

The firm says that the two brands with the next-highest percentages of such deals were Mazda, 58% of whose financed transactions last month were zero percent offers; and Mercury with 32% of its finance deals offered at 0%. "Credit must be starting to loosen if almost a quarter of all transactions financed in March were approved for zero-percent financing," said Jessica Caldwell, senior analyst for Edmunds.com.

The firm says the average automobile-finance interest rate dropped to 4.4% last month, the lowest average rate since 2002 when Edmunds.com began to track finance records. Toyota had the lowest average finance rate at 1.9%, followed by Mazda at 2.5% and Ford's Mercury brand was third at 3.3%. Edmunds said Kia had the highest average interest rate in March, at 7.1%.

Among luxury brands, BMW had the highest average down payment at $13,614, and the shortest average loan term, 52.4 months. In non-luxury, Subaru had the highest average down payment at $3,911, and shortest average loan term, 60.9 months.

"We are also seeing a big push in the zero-percent arena from GM, Chrysler, Mazda and Nissan who have had those offers off and on for years," says Caldwell. "GM and Ford have been doing it for some time, but I think Toyota brought attention back to this concept, and really breathed new life into it: the attention drawn to them got other brands talking about it."

Caldwell sees the trend continuing into April and beyond. Honda began offering similar deals at the end of the month. "I don't see this concept going away. Low financing means a higher-quality customer than cash rebates, and it doesn't hurt resale values as much," she says.