What are Toyota IncomeDriver Notes?

Have you heard of Toyota IncomeDriver Notes?

I was told about these notes by a reader, Rich, and I found that concept fascinating.

I just got an email today from Toyota offering “Income Driver Notes”. 3.25% variable rate investment with as low as $500 deposit. With the rising interest rate environment, even places like Toyota financing are getting in on the gig. Maybe this is a topic for a new newsletter? Want me to forward the note to you?

You know how when you buy a car, the dealership tries to get you to use their financing? The rates are not going to be better than your local credit union or even a commercial bank. But they push it because the commissions are higher.

Do you know where the financing arm of the manufacturer gets the money? A variety of places but one of the sources is investors – folks like you and me.

Table of Contents
  1. What are IncomeDriver Notes?
  2. What Are You Investing In?
  3. What Other Auto Financing Companies Offer This?
  4. Are IncomeDriver Notes a Good Idea?

What are IncomeDriver Notes?

The full name of these notes is “The Toyota Motor Credit Corporation Variable Denomination Floating Rate Demand Notes” and they are a way for investors to invest directly in senior notes issued by Toyota Motor Credit Corporation (TMCC). According to the prospectus, these notes have no stated maturity and subject to repayment at investor’s demand at any time. TMCC can also redeem them at any time.

The notes have a floating rate, which means it can change. As of this writing, they are offering 4.00% APY but just like a savings account, that can go up or down. The minimum initial investment is $500.

These notes are NOT FDIC insured. They’re not a bank deposit.

What Are You Investing In?

You are, in effect, lending money to Toyota Motor Credit Corporation. I assume they will lend that out to folks who need auto financing and earn the different in interest they collect and what they pay to you.

Your risk is that TMCC goes under and you join a list of creditors. Given that TMCC’s overall credit rating is A+ according to Fitch (as of November 2021), I suspect this risk is relatively low but it’s certainly a risk.

And remember, these are unsecured notes. The money may ultimately go to financing a car but these notes are not secured by anything other than the TMCC’s credit.

What Other Auto Financing Companies Offer This?

Quite a few!

This falls into the category of “car demand notes” and they were appealing when interest rates were lower. They offered a slightly higher yield than bonds and savings accounts.

Here are the ones I know about (rates are as of 12/27/2022):

Are IncomeDriver Notes a Good Idea?

Right now? Not really.

Interest rates on savings accounts and certificates of deposit are going up as the Federal Reserve increases rates. We are seeing no penalty CD rates that are higher than the current rate of IncomeDriver Notes.

If you can lock up your cash for a while, you can beat these rates handsomely with a Series I bond with a current rate of 5.27% APY! (but you are locked in for a year and will pay 3-months interest as a penalty if you withdraw in under 5 years)

There is a small non-zero risk that TMCC could go bankrupt and you’ll have to deal with that process if you want your money bank. There’s no risk of that when you go with a bank or the United States Government.

Right now, the rates aren’t appealing enough for this to be a good investment.

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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