Auto sales continued to surge in August, with new-car purchases rising 20% compared with a year earlier, and continuing what has turned into a banner year for the rebounding car industry. Analysts point to several factors driving auto-sales momentum, including pent-up demand following consumer reticence during the recession and high fuel prices that are helping pump up sales of smaller cars as people trade in gas guzzlers.

But another factor -- and one that’s perhaps the most important if you’re in the market for a car now or considering buying soon -- are the 0% financing deals being offered by several automakers. The Detroit Free Press reports that more than one of every 10 new vehicles sold in the U.S. in August was bought using 0% financing -- the highest percentage of interest-free auto loans of any month this year.

"Consumers have been responding," Bill Fay, group vice president and general manager of Toyota, told the Detroit Free Press about his company’s 0% financing offer. So much so that Toyota is expanding the option into September to include its top-selling Camry sedan.

The Detroit Free Press pointed out that automakers' finance arms and outside lenders can easily offer interest-free loans since they’re paying historically low interest rates for their funds. The Federal Reserve has kept interest rates low to encourage banks to make loans and tempt small businesses and consumers to ask for them. While economists and politicians debate whether the policy is effective, it’s led to stronger new car sales in August and higher automaker profits -- and can lead to good deals for car buyers.

One analyst who spoke with the Detroit Free Press called it “the best of both worlds … since automakers can offer low interest-rate programs at little cost to themselves and consumers can take advantage of these offers and get a lot of car for their money." In addition, more consumers are qualifying for the low rates since lending standards have loosened. And with financial institutions offering rates as low as 2.9%, “automakers almost need 0% financing to attract attention and keep [car buyers] from going to the credit union or bank,” Paul Taylor, chief economist with the National Automobile Dealers Association, told the Detroit Free Press.

Despite not offering cash rebates as in the past, many automakers offered only financing deals in August and still saw sales increases. "Toyota and Volkswagen offered low financing, but no cash equivalent,” Taylor noted. Another factor that’s making low-interest deals possible is that most automakers are back to full inventories, Taylor added, and these 0% finance deals didn’t make sense without enough vehicles to meet demand.

There are two more factors that make this a great time to buy. One, dealers typically try to clear outgoing 2012 models from their lots this time of year to make room for new 2013 models. Two, with a shortage of used vehicles, residual values remain strong, Taylor said.

[Source: The Detroit Free Press]