Should I Cosign For a Loan?

What the bible teaches about pledging yourself for another's debt.

A friend or family member needs a loan, but their credit score is not high enough (due to terrible or no credit history), or they don’t have a large enough down payment or some other reason. So they come to you and ask you to cosign for their loan.

What does it mean to cosign for a loan?

To “cosign”, simply means that you agree to assume the responsibility of another person’s debt if they are unable to pay it. For example, if you cosign on your brother’s $20k car loan, you have now agreed to pay the bank back that $20k (or whatever is left at the time of default) if your brother is not able to pay it back.

Many people will face this dilemma at one point in their lives. In fact, many people will actually cosign for loans even when they do not feel comfortable doing it. It is usually due to not wanting to be the bad guy, or is sometimes a genuine attempt to help someone. This is often viewed as a way to help out someone in need – such as a responsible, young person who just needs a chance to display or prove their credit worthiness; or a way to assist your child at the beginning of their “independent life”. But is this a wise thing to do?

Well, what does the bible say about this?

Proverbs 17:18 tells us that –  ”A man lacking in sense pledges and becomes guarantor in the presence of his neighbor.”

Right away we see that the bible describes the one who cosigns on a loan as “senseless”! We can see that it is not a wise thing to make a pledge based on someone else’s ability to pay back a loan.

We also see such council in Proverbs 22:26 – “Do not be among those who give pledges, among those who become guarantors for debts.”

Not only are we instructed not to cosign for a loan, but we are also shown some of the dangers of doing so: Proverbs 11:15 tells us that, “He who is a guarantor for a stranger will surely suffer for it, but he who hates being a guarantor is secure.”

So, we are actually told that we will “surely suffer” if we decide to pledge ourselves for another person’s debt; and that one way to stay secure is to “hate being a guarantor”! Those are very strong words to describe what has become such a common practice today.

Also in Proverbs 20:16 we find these words, “Take his garment when he becomes surety for a stranger; and for foreigners, hold him in pledge.”

It was common to pledge a garment as security for a loan, but – according to Exodus 22:26-27 and Deuteronomy 24:10-13 – that garment had to be returned by sundown. The idea here is that one who is foolish enough to pledge himself for the debt of a stranger will most likely never be paid back; so the one making the loan should demand the cosigner’s garment as security for the loan. This shows the senseless and unpredictable nature of pledging your possessions or your life based on another person’s ability or willingness to pay their debts.

Also, one question that must be asked is, “Why does this person need a cosigner?”. The most basic reason is that their bank does not believe that they will pay back the loan. They use their own experience, a few calculations and the potential borrower’s history with loans (usually expressed on their credit report) to make their decision regarding the loan. When they request a cosigner they are basically saying, “We don’t trust this person to be able to pay us back, but if YOU are willing to take all the risk then we will give him the money!

What should you do if you have already entered into such an agreement?

My son, if you have become surety for your neighbor, have given a pledge for a stranger

If you have been snared with the words of your mouth, have been caught with the words of your mouth

Do this then, my son, and deliver yourself; Since you have come into the hand of your neighbor; go, humble yourself, and importune your neighbor.

Give no sleep to your eyes, nor slumber to your eyelids;

Deliver yourself like a gazelle from the hunter’s hand and like a bird from the hand of the fowler.

1. You can give them an interest-free loan. If you know the person is in need, this is one way to help them that will honor God. Proverbs 28:8 assures us that, “He who increases his wealth by interest and usury gathers it for him who is gracious to the poor.” According to Deuteronomy 23:19-20, it was against the law for an Israelite to charge interest to fellow Jews (of course, loans were only to be requested in times of extreme need and poverty – not to fund frivolous, sinful spending like we see today), but many violated this command. As we see here, giving someone in need a loan and not charging interest is a way that you can assist the one in need and please God.
2. Give them the money that they need. Proverbs 19:17 tells us that “One who is gracious to a poor man lends to the Lord, and He will repay him for his good deed.” If you are able, giving your money to one in need – and only expecting repayment from the Lord – is another way to assist a brother in need and honor God with your finances.

As mentioned earlier, since the bible teaches that debt is slavery (Proverbs 22:7), borrowing should only be done when one has a basic need that cannot be met by their income. It was usually a short-term loan, and the Israelites were commanded to forgive all debt every seven years (see Deuteronomy 15:1-15). Much of the borrowing that we see today represents a person’s desire to live “above their means”, and I do not believe that type of borrowing (or giving) is what God is speaking of. Hopefully, I will have a chance to address this in much detail in a future article.

So overall we see that God is completely against the idea of cosigning for another person’s debt, even if we are really seeking to be a blessing to someone in need. However, the bible does teach us other ways in which we can assist others.

I mentioned “stewardship” earlier. I realize that this may not be a term or concept that is familiar to many modern readers, but this is a concept that God expects us all to understand. A steward is one who manages another person’s property, finances or other affairs. Here are several articles that do a good job of describing the concept of stewardship:

• http://www.goodstewardkeys.com/stewardship/im-sorry-but-stewardship-is-not-just-about-management.php
• http://onemoneydesign.com/blog/2010/01/10/what-the-bible-says-about-money-financial-stewardship/
• http://www.biblemoneymatters.com/2010/04/financial-stewardship-the-forgotten-component.html

I would love to hear your thoughts on cosigning – even better would be your experiences with it. If you have any questions on this or other concepts, please leave your comment below.

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photo credit: 4PIZON

© 2010, Khaleef Crumbley. All rights reserved.

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