Cut the cost of buying a car

Everyone knows that new cars shed pounds fast. The average car drops 20% in value on leaving the forecourt, and loses up to a third of its list price within three months. Just a year after buying, the owner of a Fiat Grande Punto 1.2 Active, for example, would struggle to salvage 50% of the new price, according to Parker's. And that's by no means the worst offender.

So what can you do about it? One option being pushed just now is guaranteed asset protection insurance or 'gap'. This plays on the fear of crashing a car or having it stolen soon after buying it, only to find your car insurance covers solely the replacement cost at the time of the accident, rather than the purchase date. That means that driving your shiny new motor off the forecourt and into a lamp post could cost you thousands of pounds. So for a monthly premium you can buy a gap policy that pays out the difference as a lump sum.

That's one - rather expensive - solution. But here's a better way to avoid the gap problem just don't ever buy a new car. Most people can't afford to right now. Indeed, sales of new cars fell by 31% last month, the worst showing since 1974, reports the FT. But the wonder is that anyone ever does, even when times are good. Depreciation is just the start of your problems. Unless you pay cash, there are financing costs, such as loan interest, on top. The more you pay, the more you'll be borrowing. Even the cheapest personal loans cost 8% or more a year, says Moneyfacts.co.uk. Not to mention the fact that a higher purchase price will whack up your insurance premium.

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But what about reliability? These days, cars serviced regularly shouldn't cause major trouble, even after five years or more. Most manufacturers offer three-year warranties as standard some even offer five. So if you're worried, buy something, say, one to two years old and you'll still be covered for a good while even if something big goes wrong.

If the car is outside its warranty period or you are nervous about accident damage, have it comprehensively checked by the AA for under £200, or by your local mechanic.

And if you're worried about saving money, go for a petrol engine. The average diesel car costs £1,400 more than its petrol equivalent, says the AA. Sure, you'll pay a bit less road tax and use less fuel overall, but Parker'shas calculated that even a frugal BMW diesel Mini will take a full seven years to break even.