I visit my parents every week to see how they are, and for them to see how I am. We’re a traditional family, where phones are not allowed at the table until we finish eating. At that point, my parents show us their favorite youtube videos of newborn babies and funny animals. We talk about work, and our lives, and gossip. I come from a family that left El Salvador in the early 80’s. Being a tight-knit family of 9, when one family member moves, the rest of the family eventually moves to be closer. At this point, our family makes up more than 30 people. They all live within a 20 minute radius of each other. My cousins are now having children, making our family even bigger.
One night, my mom was talking about a great deal she received in the mail. They were offering to buy her car at double the blue-book value as long as she bought a new car. She was thrilled! She was getting ready to call them up the next day and sign the papers.
“I’m so excited, because I don’t want to pay the amount I’m paying anymore. I can trade it in and get a new car. I even have skimmed some profits off of the LTC to BTC trading I’ve been doing for some months now.”
She told us what car she was looking at. It cost about 24,000. By trading in her car, she would get back 10,000. So, she would only have to pay the rest back.
Or so she thought.
We asked her what we thought was a pretty simple question:
“So, how much do you have left to pay on your car?”
“About $7,000. But by trading in my car, that payment will be gone!”
At this point, my sister and I looked at each other. We realized that my mom was about to make a big mistake.
“Wait a minute…so you owe 7,000? How much is the trade-in value of your car?”
“…And you want to buy this new car for $24,000? But, that’ll only lower the cost of the car to $21,000.”
“What? But the trade-in value is $10,000. Wouldn’t I pay a little more than half the value of the car?”
My mom is a very strong-willed person. She doesn’t take to any kind of argument very kindly. A survivor of a decade-long civil war and a person who has willed herself to a professional job as the assistant to the retired board member of the New York Stock Exchange, she is always ready for an argument. We had to tread waters…lightly.
“Well…when you put a car in for a trade-in, it doesn’t mean that your car loan goes away, it – ”
” -What? But it says, I’d get a discount.”
“Well, not exactly. The financing doesn’t go away on your last loan. Now you’ll just end up having to pay a higher car note than your last one.”
Our conversation went on like this for a few more minutes, but in the end, we were able to convince her that she was about to make a very big financial mistake.
Every day, our family members and friends make financial mistakes that can cost them unless they know where to turn. Intelligent people make costly financial decisions, too. Could your family member be next? Make sure they know where to turn!
Visit the Patchogue-Medford Library’s Financial Literacy page to get information on getting a free credit score, financial calculators, and trustworthy information on important financial topics.