Toyota Financial has warned of a potential default on its Toyota loans, with the Japanese automaker struggling to meet demand amid a global price slump.

In a note to investors on Thursday, Toyota Financial said it has raised $1.6bn (£1.2bn) to help cover its costs as it faces mounting debt repayments.

It said it expects a loss of about $4bn for the year ending June 30, a deterioration of $2bn since last quarter.

But, it said, its results in the past few months have been “good” and there are “no signs that the situation will change.”

Toyota Financial has raised about $1bn to cover its cost of servicing loans, and its earnings are good, the note said.

But it warned that if the situation worsens and interest rates rise, it will need to take a “hard” financial hit.

Toyota’s debt and cash pile of about US$40bn are more than enough to fund future interest payments.

But the Japanese company said it will continue to spend money on capital investment and make investments to strengthen its balance sheet.

It is also investing in infrastructure, it added.

“Our strategy remains to invest more to maintain a solid financial position, with a strong balance sheet and to continue to grow revenue,” the note read.

The Japanese automakers share market fell 2.5 per cent to 4,847.90 yen.

Toyotas shares closed down 5.3 per cent at 4,921.90.