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Toyota Financing: Know Your Options in 2018

toyota financing

Looking to finance a Toyota through a dealership? Toyota Financial Services (TFS) is the lending arm of Toyota. Boasting 3,300 associates nationwide, it has been financing the brand’s cars and trucks since 1983. Consumers can get Toyota financing on new and used-vehicle purchases or on leases.

Before you finance a vehicle directly through a dealer like Toyota, however, it’s important to consider that outside lenders may have a better deal to offer.

There’s a lot of power in getting preapproved for financing before you set foot on a dealer’s lot. Banks, credit unions and online lenders may offer auto financing preapprovals for some customers. With such an offer in hand, you may be able to negotiate more favorable interest rates and seal a deal more quickly with the dealership.

LendingTree makes it easy to compare multiple car loan offers for free by filling out a short online form. Once you have the lender’s preapproval check or coupon, you can bring it with you to the Toyota dealership, where you know exactly how much you can spend. If the dealer won’t accept the preapproval interest rate, you can take the coupon elsewhere and try to find someone who will.

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Tips for buyers looking for Toyota financing

If you’re still planning to finance a Toyota through the dealership, here are some things to consider:

Know how much you can afford. Before applying for Toyota financing, you should choose a vehicle and create a budget you can live with. You should factor in not only the cost of your monthly loan payment, but also taxes, title fees, dealer fees, maintenance and insurance.

What will your monthly payments look like? LendingTree’s Auto Payment Calculator estimates what you can expect to pay based on term, interest rate and loan amount. There is a Toyota car loan calculator as well.

 

TFS recommends that you download and complete its loan application checklist before you visit a dealership. Bring proof of identity, income and residence.

Know your credit score. You can and should check your credit for free at LendingTree to see where you rank. Your credit score will greatly impact the rate on your auto loan.  The rate you receive will depend on where you fall in the credit tiers used by the lender. Each lender will have its own underwriting rules, including the lenders that work with Toyota Financing offices.

 

Average auto loan rate by credit tier
Credit Score New Cars Used Cars
781-850 2.84% 3.56%
661-780 3.77% 5.29%
601-660 6.60% 9.88%
501-600 11.05% 16.48%
300-500 13.98% 19.62%
Source: Experian State of the Automotive Finance Market (Q1 2017)

 

“To determine a tier level, we evaluate each deal we buy, assessing the customer’s credit score, capacity and the overall deal structure,” says a TFS spokesman, Justin Leach. “When we book a deal, we want to make sure we’re putting the customer in a contract they can afford so that the customer can pay us back, keep the car and stay healthy financially.”

But your credit score isn’t the only factor lenders will consider, and some might accept borrowers with less-than-stellar credit who can demonstrate a recent history of on-time payments.

“The game is changing,” Matt Jones, senior consumer advice editor at Edmunds, tells LendingTree. “Your credit profile and your ability to pay can mean more than the score.”

Take low-APR offers with a grain of salt. Many dealers seek to attract customers by offering short-term promotional financing deals, such as a 0 percent APR for a certain number of months. Pay close attention to what your APR will be after that promo ends, though. You might be better off opting against the promo deal, or looking for a financing deal you’re comfortable with elsewhere.

Come ready with your auto loan quotes. If you’ve done your homework and already have secured preapprovals for financing from a bank, credit union or another non-Toyota lender, be sure to bring the authorizations to the dealership. Toyota may try to meet or beat the offer. You also have the option to take it to another Toyota dealership to see what it offers.

It’s a good idea to walk into a dealer with preapprovals from other lenders so you can be sure you’re getting the best deal. And getting competitive free offers at LendingTree can give you an idea of how well you can do outside the showroom.

Get preapproved for Toyota financing. You can also see if you are preapproved through Toyota by filling out this application. You just have to fill out one application, even if you are shopping at multiple dealerships. Visit as many Toyota dealerships as you’d like.

Visit more than one showroom. Based on region or inventory, there can be better Toyota deals in a nearby town.  Think of it as searching for your loan and your vehicle separately. The “Find Offers” feature at Toyota.com gives you an idea of APR and showroom rates currently offered on different makes and models.  You can negotiate the APR at the showroom, the Consumer Finance Protection Bureau (CFPB) says, since the dealer’s rate leaves wiggle room.

Two ways to finance an auto purchase through Toyota

Option 1: Finance a car directly through Toyota

When you finance a car through a Toyota dealership, the finance representative works with partnering lenders at TFS to find a rate that works based on your credit and other factors, including down payment or the value of any trade-ins. Lynch says TFS works with as many as 25 lenders. Still, it’s recommended that you do your own shopping before you head to the dealership. There’s no better way to be sure you’re getting the best possible rate.

Get preapproved for financing
The best way to strategize when you’re ready to finance a Toyota vehicle is to take a dual approach to shopping for financing.

Get a preapproval at Toyota. You can also visit  LendingTree, where you are able to compare car loan loan offers from an array of lenders. That way you can face the dealership with hard figures on what you can get elsewhere. With an outside preapproval, you’re ready to buy or walk away. The dealer may try to compete or sweeten the Toyota offer since he or she profits from arranging the financing.

You can begin the official Toyota loan application process by registering at Buytoyota.com.  It is not a digital application, but the form is sent to local dealers who contact you and explain the Toyota financing options. The credit-conscious should take note: Because you’re allowing Toyota to check your credit score, it will count as a hard pull.

TFS extends loans to buyers of new vehicles or Toyota Certified Used Vehicles (TCUVs) up to five years of age. The monthly payment depends on the vehicle model, the annual percentage rate (APR), the length of the term, the percentage of the car you finance and how much you can afford as a down payment.

Low-credit loans
The TFS program for carbuyers with low credit is called iFi. It’s open to applicants with a credit score of at least 610 and no 90-day-past-due accounts, charge-offs, collections, repossessions or foreclosures in your credit history. You’ll need three personal and verifiable references to apply. There’s a minimum 10 percent down payment — that’s 10 percent of MSRP or selling price, whichever is less.

Option 2: Leasing from Toyota

Should you buy or lease a car? There are sound reasons for each option, so it’s really up to you. Toyota has an online quiz you can take, which might help you answer that question for yourself. Leasing is generally better for drivers who don’t drive more than 12,000 miles per year, because many leases have annual mileage limits and if you exceed them you’ll have to pay hefty mileage fees later.

“People that purchase cars and trade them in over and over can get into a credit bind with negative equity,” Jones says. “You need to take a good long assessment before leasing. You have to know yourself. “

Toyota’s leasing program

TFS offers leasing with 24- to 60-month terms on new Toyotas and Toyota certified used vehicles. Before you sign the lease, you should factor in these costs:

  • Acquisition fee
  • Taxes
  • First month’s payment
  • Refundable security deposit
  • Capitalized cost reduction

At the end of the lease, you’ll be given the option to purchase the vehicle. Let’s look at some of the pros and cons of leasing through the dealer:

Pros:

  • There is a seamless way to turn in the vehicle to Toyota after the lease without having to sell it at reduced valuation.
  • Monthly payments and upfront cash deposits are lower than financing to buy, Toyota says.

Cons:

  • After leasing the car for many months, you won’t have any equity.
  • The car is leased with its existing equipment; you cannot make after-market modifications.
  • You can also be hit with fines if the vehicle is returned at the end of the lease with “excessive wear and use.” (Toyota offers an optional excess-wear-and-use protection plan.)
  • You’ll pay extra if you exceed the mileage limits of 15,000 miles a year – or 12,000 per year on a low-mileage lease.
  • Finally, you could face a “substantial cost” for returning your Toyota vehicle before the lease is up.

What about lease-end options?

In the months approaching the end of a Toyota lease, the TFS will send you notifications about your options. If you love the car and features, you can step up and purchase the vehicle. Or those who want to drive a new car or change to a different Toyota model can just turn in their vehicle and lease another.

TFS has a dedicated Lease End website where you can explore your options.  To lease another Toyota, you must return the current car at a turn-in appointment with the originating dealer and pay any fees or fines due under the terms of your lease agreement. To buy the leased vehicle, obtain a payoff quote from your online TFS account or phone 1-800-286-0652.

Here are some pros and cons to consider with lease-end options:

Pros:

  • You’ll be notified in advance to decide how you want to proceed. TFS has a lease-return checklist to let you know potential charges, necessary documents and whom to contact for a complimentary inspection before a return.
  • Jones says to check if the value of the leased vehicle exceeds the residual buyout amount.
  • Because of the rising cost of used cars, he adds, you might be able to purchase the car for less than its valuation.

Cons:

  • Not everyone is guaranteed a purchase and lease upon returning a vehicle.
  • TFS reports that the options are “available on approved credit through your dealer and Toyota Financial Services.”

The low-APR promo

You’ve surely seen the ads for great Toyota deals on television or the web, or heard them trumpeted on the radio. Toyota occasionally offers 0 percent or 0.9 percent promotional APR financing on its vehicles. You can search for Toyota promotions by ZIP code to find deals in your area. (Click on “Offers” at the top of the linked web page.) The most common time of the year for such deals is late in the near, around November or December, when dealers are eager make room for new inventory.

Dealers may also offer these seductively low APRs to sweeten deals for customers who might need an extra incentive.

However, these promotions may be used just to get you in the showroom. The New York Times reports that no more than 10 percent of customers actually qualify for these offers. Be on the lookout for a showroom or finance manager offering a low-interest deal while enticing you to look at options that will jack up the total price.

Tips before you chase a 0 percent financing promo:

  • Get preapproved so you have options.
  • Be sure the car being promoted is the one you want, rather than merely accepting financing that looks attractive. If the vehicle is missing a must-have feature, you will have to pay more to have it installed.
  • Put down as much as 20 percent or consider buying gap insurance to fight depreciation.
  • Don’t accept a 0 percent loan with a term longer than 60 months. Dealers may offer 72-month loans but you might be sick of the car by the time you actually own it and it will have further depreciated in value over those extra months.

For consumers weighing the differences between cashback and low-percent APR offers, Edmunds has an online comparison tool.

 

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