Everyone has heard of Toyota as a car brand, but did you also know that this Japanese automotive behemoth is a big name in car finance? Its full name is Toyota Financial Services, but it's also often known simply as Toyota Financial or TFS.
In short, it's the company's financial arm responsible for providing monetary services to Toyota and Lexus dealers and customers directly. In this article, we'll look at what TFS does for its customers, its role within the larger Toyota world, and what competitive advantages the company has.
Background: Toyota Financial Services
The U.S. division started in the early 1980s in Denver, Colorado, with a single finance contract for a used Toyota Corolla. Today, the company employs more than 3,000 people and manages assets well over $100 billion. Its chief products are car financing, leasing, and protection plans, which get sold either to customers through dealerships or directly to vehicle buyers.
TFS provides an extensive range of programs and options to buy and lease Toyota vehicles. Offerings include things like vehicle service contracts and other prepaid protection services. It's a one-stop-shop approach for many Toyota customers.
Toyota Financial Services: Buying a Car
Although TFS is technically a separate company from Toyota Motor Corporation, it is part of the Japanese parent company founded in 1937.
Its flagship financing plans are the main instruments people purchase Toyota vehicles from partnered Toyota dealerships. The main financing products are also run in conjunction with many promotional rebates and other special programs to make purchases more accessible and affordable for qualifying customers.
While many opt for leasing (see below), others choose to buy for the greater freedom that comes with owning the car. There are no mileage limits and end-of-lease requirements, including potential balloon payments. Finance plans are loans that allow customers to drive their Toyotas away from the dealership while making monthly payments (typically over 24 to 72 months)
Interest rates can be as low as 0% APR for those with top credit ratings but typically start at 1.99% for the best credit score holders and increase for those with lower credit scores. The average rate is 4.19% APR, but it can run as high as 14.95% for those with poor credit.
When purchasing a car under a TFS finance agreement, buyers make a down payment and then submit equal monthly installments as determined by the contract. The most common arrangement is a 48-month plan, so if your monthly payment is $450 a month, then you'd pay that amount 48 times. After the contract, the car becomes owned outright.
According to Toyota, five main factors impact the amount of money paid each month:
- The selected vehicle
- Interest rate/APR (heavily dependent on credit score)
- Length of the finance term
- Size of the down payment
- The total amount of money financed
So, the ideal arrangement is a small total amount of money financed over a more extended period, with a low APR and large down payment. Under these circumstances, a borrower will get much lower monthly payments. Once again, one's credit score makes a big difference. Below is an example of the estimated monthly payments on a 2022 Toyota Camry (with a $32,000 selling price, 72-month loan, and $2,000 down payment) for two buyers with different credit scores.
- Poor Credit (580-609) - APR of 14.95% - $676/month
- Excellent Credit (720+) - APR of 4.19% - $503/month
Though these are only estimated rates, the difference in interest rates clearly demonstrates the range in monthly payments. And taking advantage of a promotional APR (such as 1.99% or 0%) would further widen the gap.
Topmarq Tip: How Interest Rates Affect Car Equity
Toyota Financial Services: Leasing a Car
TFS also offers financing for Toyota lease agreements, which have certain advantages for some customers who are either not in a position to buy a car outright or who otherwise need more flexibility with a car. For instance, a lease could prove favorable for someone with a three-year work assignment. At the end of the lease, the customer simply returns the car back to TFS and moves on to the next job and vehicle.
A car lease typically requires less money upfront and lower monthly payments, but that's because a lessee only pays for the depreciation and interest on the car. There is no equity build-up like with a conventional car loan. The difference comes at the end of the lease, where the driver has to decide:
- Option 1: Make the final balloon payment and own the car
- Option 2: Return the vehicle and walk away
- Option 3: Return the car and exchange for a new car lease
The upfront costs to initial a TFS car lease may include several charges:
- First monthly payment
- Acquisition fee
- Refundable security deposit
- Dealer fees
- Taxes and registration fees
- Add-on purchases (such as a protection plan)
Instead of a traditional down payment, buyers usually make a capitalized cost reduction (which reduces the car's overall price and the monthly payment). A lease agreement typically features an annual limit on mileage, anything above which TFS charges a per-mile penalty fee.
For many, leasing a Toyota is preferred over buying due to flexibility. Just return the car and pick out a new one at the end of three years (or whatever the term is). This approach is appealing for someone who prefers to drive the latest model.
Topmarq Tip: Lease Vs. Buy a Car - Which is Best?
Toyota offers several financing and rebate programs to make its cars more appealing to prospective buyers.
College Grad Program
A student who has graduated from college in the past two years or will graduate in the next six months is eligible for a $500 rebate towards purchasing a Toyota. For leasing, TFS will waive the security deposit.
TFS offers a $500 rebate for active-duty military personnel or those serving reserve duty. The program also applies to veterans honorably discharged within the past two years. Military retirees are eligible, too.
Current TFS lessees can waive the disposition fee when a new Toyota is leased.
Financing for Limited Credit (iFi Program)
Car shoppers with a low credit score but otherwise good circumstances can take advantage of TFS's iFi program. It's meant for those with FICO scores as low as 610 but with no 90-day overdue accounts, collections, or repossessions in their credit history. To qualify, the applicant must also have three verifiable references, proof of a full-time job for at least six months, enough income to cover the payments, and a ten percent down payment of the selling price.
1 Pay Lease
TFS also offers its 1 Pay Lease program. A single (and large) upfront payment starts the lease, and there are no monthly payments. Overall, it's less expensive than the traditional monthly payment approach.
TFS offers four protection products for customers:
- Vehicle Service Agreements
- Guaranteed Auto Protection (GAP)
- Prepaid Maintenance Plans
- Tire and Wheel Protection
Vehicle Service Agreements
A vehicle service agreement (sometimes called a vehicle service contract or extended warranty) provides coverage for a Toyota with an expiring or expired warranty. The highest level is Platinum, covering most parts and systems for 3 years/50,000 miles to 10 years/125,000 miles. Basic coverage is a powertrain-only offering. Most plans include 24/7 roadside assistance.
Guaranteed Auto Protection (GAP)
Guaranteed Auto Protection (GAP) coverage safeguards vehicle owners and lessees from a shortfall if a car is totaled or stolen. Insurance usually only pays for a car's market value, which can be lower than the loan or lease balance. In these circumstances, a GAP policy would pay the difference.
Prepaid Maintenance Plans
TFS offers two prepaid maintenance plans. Toyota Auto Care covers oil and filter changes and multi-point inspections for four years or 55,000 miles. The premium ToyotaCare Plus covers these services as well tire rotations and other requirements listed in the car's scheduled maintenance guide. However, it's only available for Toyotas with mileage under 31,000 miles. Validity periods range from 3 years/50,000 miles to 5 years/75,000 miles.
Tire and Wheel Protection
Supplement TFS plans offers different coverage levels to repair or replace tires that become damaged by road hazards like potholes or nails. Towing and related services are part of higher-level coverage. The Platinum version adds paintless dent repair and windshield repair.