What to Know Before Financing a Car in Your 20s

Right now, my first car is a 2012 Volkswagen Jetta. This year it turns 13 years old. I bought it last year for less than $10,000, and when I bought it, it had about 36,000 to 37,000 kilometres on it.

It was in very good shape and had very low mileage, so I could have made a different choice. I could have bought a more expensive car. I could have taken out a car loan. I decided not to, and the reason has less to do with disliking cars and more to do with liking them enough to be careful.

I am passionate about cars and driving, but I am also passionate about personal finance. Once I realized cars were going to be a huge part of my life, I wanted to enjoy the hobby without letting it damage everything else I was trying to build. Cars are expensive, and enjoying them responsibly requires more than asking whether a monthly payment technically fits.

Start With The Life Around The Car

I am 26, and I have a lot of financial goals outside of driving. I want to save for a down payment on a home. I am planning a wedding in a couple of years, so I need to prepare for that too. I also have other hobbies, including travelling with my partner, which is a huge part of our lives. I want to be able to save for those experiences instead of putting every spare dollar into transportation.

The point is balance. I want to enjoy my hobbies, including cars, but I also want to be set up well for the future. When I was searching for my first car, the obvious tempting option was to buy something more expensive for $20,000, $25,000, or $30,000 and finance it. That would have given me a nicer car right away, but it also would have meant less money saved for all the other things I was planning.

First, I did not have that much cash simply sitting around. Second, even if I did, I do not think it is financially responsible early in your career and life to tie so much cash to a depreciating asset. I am also not the kind of person who needs to compete with other people or have the nicest possible thing as early as possible. Having a newer or more impressive first car did not matter enough to justify the trade-off.

If I had added a car payment to my life, it would have been much harder to save for a wedding or travel as much as I want. For me, that did not make sense.

The Payment Is Only One Part Of Ownership

The cost of owning a car is not just the car payment. You also have to maintain the car. You have to buy insurance. You may need to repair it. You have to buy fuel. Those costs do not disappear because the monthly payment looks manageable.

This matters even more when you are young and do not have as much driving history on your license. Buying a newer car usually means paying a lot more for insurance. There is no real trick around that. Newer cars are more expensive, and they are more expensive to repair, so insurance companies charge more to insure them.

When you buy an older, less expensive car, the insurance cost can be lower. That is especially useful if you buy the car with cash, because then you avoid the payment and reduce another major ownership cost at the same time. No car payment and lower insurance is a powerful combination when you are trying to keep your financial life flexible.

Some people argue that buying newer is safer financially because the car is under warranty and should not break. That can be true in some cases, but it is not the only responsible path. If you spend enough time researching older cars and understanding the reliability of different brands, engines, and models, you can buy a very decent car for your money. In many cases, that can mean spending less overall on maintenance and repairs than people assume.

Why This Jetta Made Sense

The reason I bought this specific 2012 Volkswagen Jetta is simple: it has the 2.5-litre inline-five engine, which is one of the most reliable engines Volkswagen has produced. If you read owner forums, you will see people describe this engine as basically bulletproof.

The interesting part is that in North America, many people think Volkswagens are unreliable and Japanese cars are the reliable choice. Because of that reputation, used Japanese cars are often much more expensive than comparable used Volkswagen models. Since not everyone knows about this exact engine, these Jettas can still be bought for much less than Japanese cars from the same year with similar mileage.

When I was shopping, I compared the Jetta against the Toyota Camry, Honda Accord, Honda Civic, and Toyota Corolla. I bought my Jetta for less than $10,000 US. At the same price point, a similar Toyota Camry I found was from 2007 and had about 100,000 kilometres on it. Compared with the Jetta I found, that made my decision very easy.

That does not mean everyone should shop at exactly the same price point. Some people are looking for $5,000 cars. Some people are looking for $15,000 or $20,000 used cars. The budget will change the options, but the process is the same: do your due diligence, research the exact cars you are considering, and look for the models that give you strong value for the money. Even in a terrible used-car market, good used options still exist.

An Older First Car Reduces Stress

One advantage of an older, less expensive car is that you do not worry as much about every scratch, dent, or small mistake. That matters for young drivers and first-time owners. When you are still learning, mistakes are almost inevitable.

That does not mean $10,000 is spare change. It is still a lot of money, and I do care about my car. But it is less stressful to learn ownership on a car that is not brand new and not financially overwhelming. If something small happens, it does not feel like I have damaged an asset that dominates my net worth.

An inexpensive older car is also a great way to learn how ownership actually works. You learn how to maintain it, fuel it, change wipers, change oil, pay bills, and be responsible for a machine that needs regular attention. You get real ownership experience without spending a huge amount at the start.

Depreciation Hits Hardest When The Car Is Expensive

Because I am still young, I do not want a huge percentage of my net worth tied up in a depreciating asset. If you buy a new car for around $30,000, the depreciation over the first three years can be hard to stomach, especially when you are just beginning to build wealth.

There are exceptions. Some enthusiast cars, special models, or limited-production cars do not depreciate as much as ordinary cars, even when bought new. But those cars are usually expensive, and not many people can spend that much when they are just starting out. For the normal car-buying decision, it is safer to assume the new car will depreciate, because most of them do.

That is why I do not think it is smart to owe a large amount on a car that is losing value quickly. Car loans often last three to six years, and some people even take 84-month loans. To me, that is basically insane.

Think about a $30,000 new car and a $10,000 used car. Even if both depreciate by 10 percent in a year, the dollar amount is completely different. Ten percent of $30,000 is a much bigger hit than 10 percent of $10,000. The percentage sounds the same, but the actual money leaving your net worth is not the same at all.

I think it is relatively realistic for many people to save $5,000 or $10,000 and buy a less expensive used car. When you buy the car with cash, you gain flexibility. You can sell it whenever you want and get the money from the sale. You are not stuck inside a loan, and you do not have to ask whether the loan balance allows you to move on.

For me, that flexibility matters because I am a car enthusiast. I would like to own many cars throughout my driving life, and I wanted the option to use this Jetta for a couple of years and then upgrade later. Buying it in cash makes that kind of change much easier.

Even if you do not think that way, the same logic still applies. If you see cars purely as transportation devices and believe they are depreciating assets, the best financial move is usually to buy a decent used car that is easy and cheap to maintain, then drive it for as long as you can.

Social Pressure Can Push You Into A Bad Deal

Many young people deal with social pressure around cars. You may have a friend or coworker with a fancy new car. You may know they earn about the same amount of money as you and sit at roughly the same place socially or professionally, but they are driving something new and impressive while you are driving something older and inexpensive. It is easy to feel bad about that.

With TikTok and Instagram, it is even easier to compare yourself with other people and think less of yourself. That is toxic, but it is also part of modern life. A lot of people want to show that they have a fancy new car, even if they cannot truly afford it.

Young people especially should be careful not to fall into the trap of keeping up with friends or coworkers. If someone drives a very expensive car, that does not automatically mean they can afford it. Financing makes a lot of things look affordable from the outside.

Sometimes people do not earn enough to comfortably afford an expensive car, but the bank still lends the money because the loan can be stretched to 72 or 84 months. One of the strange things about modern society is that we measure so many purchases by the monthly payment instead of the full price. But the full price still matters.

It does not matter if the payment is $400 per month when the car is worth $70,000. You are still paying for a $70,000 car, and you are probably paying more than that once interest is included. A monthly payment can make the decision feel smaller than it really is.

Try not to be controlled by that pressure. Everyone has a different financial path and a different driving path. The right decision is the one that is comfortable for your real life, not the one that looks best beside someone else’s car.

Rich Is Not The Same As Wealthy

I could have bought a more expensive car. I could have taken out a loan. I knew I would not be comfortable doing it. Especially this early in life, I wanted a stress-free experience: buy the car in cash, avoid a required monthly payment, and enjoy it.

One book that changed my perspective on money and wealth is The Psychology of Money by Morgan Housel. One of the most important ideas in that book is that being rich and being wealthy are not the same thing.

When someone buys a fancy car with a loan, it does not mean they are wealthy. Wealth is often invisible. It is in investments, savings, and accounts that other people cannot see. Cars are the opposite. Cars are very visible, so they can create the perception of success even when the underlying finances are weak.

The person driving a new fancy car could have nothing invested and very little money available. They could be putting all of their income into that car. Do not be fooled by the appearance of being rich. A visible purchase is not the same thing as financial strength.

That idea applies to credibility too. You do not need a fancy car for your perspective on cars, driving, or ownership to be useful. The same practical point can make sense from a 2012 Volkswagen Jetta or a 2025 BMW M5. The badge does not decide whether the reasoning is good.

Decent Can Be Enough

People often act as if a newer car is required, but my Jetta does everything I honestly need. It has five seats. When I go out with friends or take a road trip, I can fit four friends in the car.

From the outside, it is not winning any design awards. It simply looks decent, especially for its age. Again, this car is 13 years old. The interior still looks nice, and I retrofitted a touchscreen with Apple CarPlay. Because of that, I do not feel like I am missing important technology. In most new cars, I would be using Apple CarPlay anyway.

The car has a sunroof. It has heated seats. They are not massaging seats, and they are not cooled seats, but those features are more nice-to-have than need-to-have. A car does not have to include every luxury feature to serve your life well.

It also weighs only around 3,000 pounds, so it is pretty fun to toss around corners. It is not exotic, and it is not the newest thing available. It is decent, and decent is great when it gives you reliability, usefulness, and financial breathing room.

The Trade-Off I Am Glad I Made

Yes, I could have bought a more expensive car. I chose not to, and I am glad I made that decision. What I have now is a reliable daily driver, peace of mind, financial flexibility, and the ability to plan for the future without a car loan dragging me down.

That is the central lesson. A car can be enjoyable without becoming the thing that consumes your early financial life. If you are in your twenties and thinking about financing, look beyond the payment. Think about insurance, maintenance, repairs, fuel, depreciation, your savings goals, your relationships, your hobbies, and the pressure you may feel from people around you.

The best car is not always the newest or the most impressive. Sometimes it is the car that lets you keep enjoying the drive while still building the rest of your life.