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) 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.)

Typically when dealers offer a loan, they do so at a rate several percentage points higher than what a bank or credit union might offer. The dealer isn't lending his own money, he's just a middleman -- the money for the loan comes from the lending arm of the dealer's associated automaker. And everybody makes money.

But now dealers are offering interest rates that are 0% or close to it -- for less than what it costs a financing arm to raise capital to lend. In this case, the dealer is not making money, and, because the automakers subsidize the loans to help dealers move cars that aren't selling, the automakers are losing money. On average, automakers lost $2,139 for each car they helped finance in 2010, slightly less than the $2,229 they lost per car in 2009, according to Edmunds.com.

Why take such a hit simply to move cars? Despite some improvements in car sales in the U.S., the market is still suffering. Last year, car sales were 28% lower than their pre-recession levels. But automakers keep churning out vehicles, and dealers stock up in part to offer selection (e.g. different colors and styles) to customers. They can't return the cars, and with sales growing slowly, dealerships have been overstocked. And that means more cars sitting on lots for longer time periods.

Toyota has been among the more aggressive with dealership financing, with 0% APR on the Camry, Corolla, Tundra and Yaris in select locations. For the six months ending September, in-house loan originations totaled 733,000, up 24% from the year ago period. "It's no secret that we've had a rough year at Toyota," says a company spokesman. "We want to bring customers back."

Although it sounds like a losing proposition, dealers actually assume little risk with these loans, and the loss automakers incur is still less than they'd face from both the stockpiles of unsold inventory and the resulting investor angst. What's more, not all loans are offered at a loss to automakers. And, unlike homes, cars are easy to repossess and can be resold relatively quickly, Taylor says. Typically, cars are repossessed three to four months after a missed payment; home foreclosures, on the other hand, can take a year to process. What's more, fewer borrowers are missing payments; year-over-year delinquency rate on car loans is down 28.4% and is expected to drop further this year, according to TransUnion. That limited risk profile on auto lending has also contributed to an increased appetite among investors for these loans. Last month, Canada's TD Bank announced a $6.3 billion acquisition of Chrysler Financial and in October, General Motors (GM) completed its $3.5 billion purchase of lender AmeriCredit Corp.

Still, dealers are proceeding cautiously, just as banks are, as they return to lending. They're lending mostly to prime borrowers with a FICO credit score of at least 700, saving their lowest interest rates of 0% to 2% for borrowers with minimum credit scores of 730 to 750 (depending on the dealer), says Jack Nerad, executive market analyst at Kelley Blue Book. Buyers should read the fine print to make sure the dealer hasn't slipped in any add-ons, like an extended warranty or a fabric treatment, that add to the cost of your loan--it's one of the few ways dealers make money from low-interest lending. On the plus side, 0% offers are being offered for loans of up to five years; in the past, the best rates usually applied for up to three-year loans. And while some of the 0% deals expire at the end of the month--still longer than the typical New Year's weekend expiration--experts say consumers can expect more of the same throughout 2011 since car sales aren't expected to return to pre-recession levels this year either.