29/01/2019
Acquiring a new or used Lexus is an exciting prospect, and for many in the UK, the most practical and accessible route is through a tailored finance package. Rather than parting with a substantial sum of cash upfront, car financing offers a flexible approach, allowing you to drive away in your chosen Lexus while spreading the cost over manageable monthly payments. Lexus understands this need for flexibility and provides a comprehensive suite of finance options designed to cater to a diverse range of customer needs and preferences. Whether you're an individual buyer or a business owner, there's a finance solution that can be shaped to fit your circumstances.
Understanding the Lexus Finance Landscape
At Lexus, we pride ourselves on offering a selection of finance products that empower our customers to make informed decisions about their vehicle acquisition. While we do not offer financial advice or recommendations, we are committed to providing clear and transparent information about each option. All finance applications are subject to rigorous credit checks and affordability assessments conducted by our trusted lending partners. It is crucial that you can comfortably afford to meet the repayment obligations of any loan you choose to arrange. As an FCA-regulated entity, Lexus acts as a broker, working with a panel of lenders to secure the best possible finance for you. We earn a commission for arranging this finance, a fact we are transparent about. Our goal is to equip you with the knowledge to select the finance product that best aligns with your personal or business financial strategy.
Key Lexus Finance Products Explained
Lexus offers several popular finance packages, each with its own unique structure and benefits:
1. Personal Contract Purchase (PCP)
PCP is a highly popular choice for individuals seeking flexibility and lower monthly payments. With PCP, you typically pay an initial deposit, followed by a series of fixed monthly payments over an agreed term. At the end of the agreement, you have several options:
- Pay the Guaranteed Future Value (GFV): This final balloon payment, also known as the Guaranteed Future Value (GFV), is the pre-agreed value of the car at the end of your contract. If you wish to keep the vehicle, you can pay this amount.
- Part-Exchange: You can part-exchange your current Lexus for a new one, using any equity (the difference between the GFV and the car's actual market value) towards the deposit on your next vehicle.
- Return the Vehicle: If you don't wish to keep the car and have met the terms of the agreement, you can simply return it to the finance provider. You will need to ensure the vehicle is in good condition and within the agreed mileage limit to avoid any excess charges.
PCP is ideal for those who like to change their car regularly, as it often results in lower monthly outgoings compared to other finance methods.
2. Hire Purchase (HP)
Hire Purchase is a more traditional form of car finance. Similar to PCP, you'll pay an initial deposit, followed by fixed monthly payments over a set period. The key difference with HP is that at the end of the contract, once all payments have been made, you automatically become the owner of the vehicle. There is no large final balloon payment to consider. HP is a straightforward option for those who intend to keep their vehicle long-term and prefer a clear path to ownership.
3. Personal Contract Hire (PCH)
Personal Contract Hire is essentially a long-term rental agreement. You choose the vehicle, the contract length, and your annual mileage. You then pay an initial rental (typically equivalent to 3-6 monthly payments) followed by fixed monthly rentals. At the end of the contract, you simply return the vehicle. You do not own the car at any point. PCH is an excellent option for those who want the experience of driving a new Lexus without the commitment of ownership and prefer to budget for all-inclusive motoring costs (though insurance and maintenance are usually separate).
4. Business Contract Hire (BCH)
Business Contract Hire is designed for companies and sole traders. It operates on the same principles as PCH but is structured for business use. Benefits for businesses can include lower upfront costs, predictable monthly expenses, and potential tax advantages on rentals and VAT (depending on the vehicle and business structure). Like PCH, the vehicle is returned at the end of the contract, and ownership is not transferred.
The Crucial Role of the Deposit
The deposit is a fundamental element of any car finance agreement, significantly influencing your borrowing requirements and subsequent monthly payments. The deposit is the upfront sum you pay at the commencement of the agreement. It can range from a minimal 0% to a substantial 95% of the vehicle's price. Some Lexus vehicles may even come with a deposit contribution from Lexus or the dealership, which can be directly applied to reduce the amount you need to borrow. A larger deposit means you borrow less, which in turn leads to smaller monthly payments and potentially a lower overall interest cost. Carefully considering the size of your deposit is a key step in creating a finance plan that is both affordable and sustainable for you.
Factors to Consider When Choosing Your Finance Package
Selecting the right finance package requires careful consideration of your individual circumstances and preferences. Here are some key factors to keep in mind:
- Budget: How much can you realistically afford to pay each month, including the deposit?
- Ownership Goals: Do you want to own the car at the end of the agreement, or are you happy to return it?
- Mileage: How many miles do you expect to drive each year? Exceeding agreed mileage limits can incur significant charges.
- Vehicle Usage: Will the car be used purely for personal use, or will it have a business element?
- Flexibility: Do you prefer lower monthly payments with the option to change your car regularly (PCP), or a straightforward path to ownership (HP)?
Lexus Finance vs. Other Options: A Comparative Overview
To help illustrate the differences, consider this simplified comparison:
| Feature | PCP | HP | PCH/BCH |
|---|---|---|---|
| Monthly Payments | Generally lower | Higher than PCP | Often lowest |
| End of Contract Options | Buy, Return, or Part-Exchange | Own the vehicle | Return the vehicle |
| Ownership at End | Optional (via GFV) | Automatic | Never |
| Ideal For | Regular upgraders, lower monthly costs | Long-term ownership, straightforward process | Users who don't want ownership, predictable costs |
Frequently Asked Questions About Lexus Finance
Q1: What credit score do I need for Lexus finance?
While there isn't a specific credit score required, lenders will assess your credit history as part of the application process. A good credit history will improve your chances of approval and may lead to more favourable interest rates.
Q2: Can I settle my finance agreement early?
Yes, most Lexus finance agreements allow for early settlement. You will typically need to pay off the outstanding balance, which may include some interest. It's advisable to contact the finance provider directly for an accurate settlement figure.
Q3: What happens if I exceed the mileage allowance on my PCP or PCH agreement?
If you exceed the agreed annual mileage, you will usually be charged an excess mileage fee per mile over the limit. It’s important to accurately estimate your annual mileage when setting up the agreement to avoid unexpected costs.
Q4: Can I modify my Lexus if it is on a finance agreement?
Generally, significant modifications are not permitted without the finance provider's consent, especially on PCH/BCH agreements. With PCP and HP, you can often make modifications once you own the vehicle, but it's always best to check the terms and conditions of your specific agreement.
Q5: What is the Guaranteed Future Value (GFV) on a PCP?
The GFV is the minimum guaranteed value of your car at the end of the PCP contract, as determined by the finance provider. It's calculated based on factors like the car's initial price, contract length, and annual mileage. This figure is what you'll pay if you choose to buy the car at the end of the agreement.
Choosing the right finance option is a significant part of the car-buying journey. Lexus is committed to providing you with the information and choices you need to drive away in your perfect Lexus, with a finance plan that works for you.
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