Sharp-eyed drivers stay in the zone with the best deals

As congestion charges take effect, Melanie Bien sees how to cut motoring costs

Running a car is expensive enough but, as from tomorrow, it's going to cost some drivers even more.

Running a car is expensive enough but, as from tomorrow, it's going to cost some drivers even more.

Motorists in central London will have to pay £5 a day for entering the eight square mile charging zone. Anyone who enters the zone five days a week could end up paying £1,300 a year.

Driving has never been cheap. Besides the initial expense of buying a car, there are the running costs and insurance and breakdown cover. So it's important to make sure you get the most competitive deals. If you're buying a car, ask yourself: do you really need to buy brand new? Depreciation costs are considerable so you might be better off buying second-hand.

New cars lose 22 per cent of their value in the first year and 45.1 per cent after three years, according to Alliance & Leicester. So a well-looked-after four-year-old car might be a much more worthwhile option. And some cars lose value much faster than others. For example, a new Alfa Romeo 156 might cost £1,920 more than a Renault Laguna but after three years it will be worth £3,280 more – so if you can afford one, it's a better buy.

Don't be afraid to haggle when buying new. With sales down, dealers are desperate for your money. Try to get a discount for cash, or free extras such as servicing or insurance for a year.

"Even though consumers flocked to showrooms in record numbers in 2001 and 2002, the prices of new cars hardly stopped falling," says Andy Bayes, head of motor finance at Alliance & Leicester. "But 2003 looks set to be a tough year for car dealers. They will have to work hard and discount prices to keep cars moving off the forecourt at the rate they did last year."

Alternatively, you could avoid the high street and buy from abroad, over the internet. It is possible to save a lot of money this way if you are prepared to wait longer for delivery. Check out websites like Jamjar.co.uk, Virgin.com and Oneswoop.com.

All your hard work sourcing the best-value car will be pointless if you then pay with expensive credit. You need to decide whether you want to purchase the car outright or are happy with a Personal Contract Purchase plan, under which you pay by monthly instalments for the use of the car, with the option of buying it at the end of a set term.

If you can afford to buy a car outright, it's best to do so, as you'll avoid paying interest. But most people need some kind of finance deal. Those offered by the manufacturer or dealership are rarely the most competitive, as there are many personal loans available at excellent rates. Moneysupermarket.com, the website that compares a range of financial products, has a deal from Lombard Direct, available only via the internet, set at 6.9 APR for loans between £5,000 and £14,999. Cahoot's loans start at 7 per cent, while Sainsbury's Bank and Direct Line both offer 7.2 per cent.

When it comes to keeping a car on the road, a Toyota Yaris costs around £184.94 a month to run, including road tax, insurance, breakdown cover and servicing, according to More Th>n, the direct financial services arm of the insurer Royal & SunAlliance. This rises to £528.09 for a Skoda Superb or £691.06 for a Jeep Grand Cherokee.

Insurance is one of the biggest outgoings for motorists, and the cost is increasing all the time. But here again, you can save if you shop around. Confused.com, a new broker site launched last month by Admiral Insurance and covering 92 per cent of all insurers, claims motorists can save, on average, £162 on their car insurance by searching for the best deal on the net.

You can also reduce your insurance costs by limiting your mileage; by restricting the number of drivers on your policy; by opting for a smaller or older car; or by taking the Institute of Advanced Motorists' test. Security locks or alarms fitted to your car can also save you money on premiums, as can having a garage.

At this time of year, breakdowns rise dramatically. While you might think you're saving money by not taking it out, breakdown cover is available for under £40 a year – far cheaper than calling someone out to rescue you. Don't limit yourself to a choice between the AA and RAC. Once again, the internet is the quickest way to source the best deals.

A copy of Alliance & Leicester's depreciation report is available at www.alliance-leicester.co.uk/cars