Cosigning

If it hasn’t already happened, there is a good chance that somebody—usually a friend or family member—will ask you to be a cosigner on a loan. This is also called surety and it means that you are personally pledging to be responsible for a loss, damage, or default. The Bible is clear on this issue: do not cosign.

“A man lacking in sense pledges, and becomes surety in the presence of his neighbor.” (Proverbs 17:18, NASB) Why would a lender require a cosigner? They have already determined that the borrower is a poor risk!

“He who puts up security for another will surely suffer, but whoever refuses to strike hands in pledge is safe.” (Proverbs 11:15, NIV) If the request is made by a friend or family member, the pressure to help out will be immense. Your requirement to make good on a loan may come at a very inconvenient time and could drain your own finances. There is another important aspect to consider—your burden to pay may place a strain on a relationship that may never be repaired.

“Do not be a man who strikes hands in pledge or puts up security for debts: if you lack the means to pay, your very bed will be snatched from under you.” (Proverbs 22:26-27, NIV) The Federal Trade Commission reports that a high percentage of those cosigning end up paying for the loan. Remember: if you cosign, you are legally responsible. It is as if you borrowed the money and gave it to somebody else. Lending institutions can be very impersonal and will often use any available recourse under the law to recover their money.

Scripture even gives advice if you have already cosigned a note. Proverbs 6:1-5 recommends that you forgo sleep and take immediate action. You are encouraged to humble yourself. Beg if necessary. Do whatever is required to have your name erased from the loan. Your rescue is compared to a deer escaping a hunter or a bird avoiding a net.

How can you help? Provide sound advice. Give a small gift. Perhaps provide a loan directly to the person in need. Model the importance of avoiding debt by refusing to cosign. Design a way instead to help them plan ahead and save cash for the purchase. Going into debt often denies God an opportunity to provide for a need. Pray. Prayer has a way of clearly separating needs from wants—especially if God’s answer is to wait.

Scripture encourages us to use good judgment about cosigning. Do not do it.

The views are those of Bruce Olmstead and not those of Summit Brokerage Services. Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested.  No system or financial planning strategy can guarantee future results