Q: #293. What does the Bible say about co-signing a loan for my child?
A: The Bible is pretty clear that co-signing a loan for anyone is a bad idea. Here are 10 verses in Proverbs that speak to this.
***I am using whatever version I think says each the clearest.
(Prov 17:18)(CEV) It’s stupid to guarantee someone else’s loan.
(Prov 11:15)(NASB) He who is guarantor for a stranger will surely suffer for it, But he who hates being a guarantor is secure.
(Prov 20:16)(NLT) Get security from someone who guarantees a stranger’s debt. Get a deposit if he does it for foreigners.
(Prov 22:26-27)(NASB) Do not be among those who give pledges, Among those who become guarantors for debts. (27) If you have nothing with which to pay, Why should he take your bed from under you?
(Prov 6:1-5)(NIV) My son, if you have put up security for your neighbor, if you have shaken hands in pledge for a stranger, (2) you have been trapped by what you said, ensnared by the words of your mouth. (3) So do this, my son, to free yourself, since you have fallen into your neighbor’s hands: Go – to the point of exhaustion – and give your neighbor no rest! (4) Allow no sleep to your eyes, no slumber to your eyelids. (5) Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler.
So, co-signing means that you: “are stupid,” “will suffer,” “have been trapped,” could lose everything you have (“take your bed”). Now, I admit that I am far from knowledgeable in this area, so I had to do a little reading on this subject. Dave Ramsey is a leading Christian financial expert. Let me share a few quotes from him on this topic that I found on his website: daveramsey.com.
“Don’t co-sign for your kids to get student loans.”
“Don’t co-sign for your kids to get car loans.”
“Don’t co-sign for your mom to get a house.”
“Don’t co-sign, because you’re going to end up paying it, and it’s stupid. Don’t co-sign ever.”
“Never, under any circumstances, ever co-sign.”
“Co-signing is one of the dumbest financial things you can do.”
“There is no reason to ever co-sign.”
Pretty clear huh? Both Christian and non-Christian experts are pretty much united in this warning against co-signing. There is only one reason why someone who loans money wants a co-signer and that is because based on their research, they do not have confidence that the person who wants to take out the loan will have the ability to pay it back. However, if they allow you to co-sign, it means they have confidence YOU will be able to pay it back. And, according to the statistics that I have read, in over 50% of the cases that is exactly what happens. The co-signer will end up having to pay off the loan.
When this occurs, obviously there are going to be some problems. Resentment, anger, and betrayal will likely follow for the co-signer. The relationship between the co-signer and the one who failed to pay the loan will never be the same again. Yes, there can be forgiveness, but it will likely never be totally forgotten. Ultimately, co-signing is just not worth risking this damage.
So, you want to help your child (or relative or friend), but have decided not co-sign: what can you do instead? The best thing is to GIVE (not loan) them money (with no strings attached). If you can pay for what they need, and feel led to do this, then do it. If you can help pay for a portion of it, then help them. You can help them with a down payment, which might help them to be able to get the loan on their own (usually the bigger the down payment the more likely a loan can be obtained).
Some experts suggest you might want to consider taking out the loan yourself, that way YOU, and not the person you are trying to help, will have total control over the property, car, or whatever the loan is for. The person you are taking out the loan for can make the payments, but if they stop, you can sell the property. Of course, you could get stuck with it too, so before you take the loan, you had better be thinking “I’ll be ok with having this property if I can’t sell it.
If, however, you decide to forgo all of the above warnings and co-sign anyway, here are two things I suggest that you do as you go into this. First, just make the assumption that the loan you are co-signing is YOUR loan. Go in thinking, “I am willing to pay off this whole loan, and I will not be upset if I have to.” This should help when the time comes that you will likely have to pay it off. Second, make sure that you have access to the same information from the lender that the person taking out the loan has. Be able to see that payments are being made and how much is left on the loan. Again, act just as if the loan is YOURS and keep yourself informed on all aspects of it.
Ultimately, I find nothing in the Bible that says co-signing is a sin. However, as we have seen, it is definitely unwise. It can ruin your financial health, your credit rating, and your ability to get a loan for yourself in the future. It can (and often does) ruin relationships. Co-signing is just not worth the potential harm it can cause.