As automobile buyers head back into dealerships after a two-year drought, they’re being greeted by rock-bottom interest terms on car financing, eye-popping lease deals and a renewed willingness to lend to people with spotty credit.  Online finance companies are on firmer financial footing, helped by government and renewed demand for direct auto financing who will packaged and sold as securities, a market that raises dollars and allows banks to write more loans. Buyers, too, are gaining confidence. U.S. auto sales rose 20 percent in February to the highest monthly pace since “funds for clunkers” in August 2009.

Earlier this month, General Motors, Chrysler, Ford, Nissan and others have been offering zero percent interest charges finance terms on auto loans. Luxury makers such as Acura and Cadillac have lease deals with zero percent down. Banks have cut their interest terms on auto financing in half.

Here are some reasons for the good deals:

Lower Interest rates:
Buyers are paying an average annual percentage interest rate of 3.7 percent for new cars financed in February, down from nearly 4.7 percent in the same month a year ago, says vehicle investigation site Edmunds.com. That’s one of the lowest rates since before the economic downturn.

Lenders, Credit Unions and Auto Finance Companies are in ferocious competition to loan you dollars. While credit unions and lenders once offered the lowest rates, financial institutions now have more competitive financing as well.

More Vehicle Loans for Subprime Borrowers. Unlike much of 2010, when the car loan market was open mainly to buyers with the best credit, people with weak credit score histories now are having an easier time looking loans because of the competitive market. The percentage of new-auto car financing going to subprime buyers – generally those with credit scores below 680 – rose 18 percent in the last three months of 2010 over the same period the year before, according to Experian, one of the three credit score reporting agencies in the US.

Better Lease Deals. Leasing is making a comeback. That’s a boon for people seeking lower monthly car payments on a auto or truck. Leases made up a quarter of new-vehicle transactions in February, Edmunds says. That was the highest single month for leasing since November 2005.

Generally, leasing means you pay less per month than you would on auto loan financing. The reason: You’re only paying off the amount the automobile will depreciate before you turn it in. When you buy, you’re paying for the whole vehicle, plus interest.

Usually, about 20 percent of new cars are leased. But the bottom fell out of that market at the beginning of the downturn because there were too nearly all used cars and not enough demand for cars coming off lease. Leasing fell to 16 percent of the market in 2009.

But as the recession progressed, used cars became scarce as people looked for cheaper wheels. That caused used auto prices to rise. Now, lenders are more wanting to remove on a lease, knowing the auto will be worth something when the lease is up. Direct finance terms are most likely to stay low this year, as the economy continues to recover. Competition also remains fierce among vehicle companies. GM said this month that it expects to dial back on lease deals and other incentives as the year goes on.