Co-Signing Loan: Dumb Idea, Unless You're Married to the Person
by Mogamahttp://mogama.info
Ask yourself. Why do you think a lender or car dealer would require a second signature to authorize a loan? Could it be that the lender has zero confidence in the first signer's ability to repay the loan? Well, duh!
This lack of lender's confidence could be due to the borrower having no credit history, little credit record, bad credit history, low credit score, scanty work history, low income, or any other less measurable reason.
In the eyes of the lender, the co-signer becomes the primary borrower. The first signer is little more than the front door to the main payer of the debt.
I learned that the embarrassing way, when, after shortly arriving in the United States, I asked a friend at church to co-sign a loan for me. He probably did it out of sympathy (I was a newbie from Africa), or out of respect (I was his Bible class teacher). In those days, I was ignorant of what the Bible teaches about money management.
But the reason my friend co-signed my loan did not matter to the lender. Months later, when I returned to Africa for a quick trip and got stuck there for 11 months, this dear brother bore the curse of making my $150 monthly payment on the vehicle for 11 months straight; that's $1,650
I felt so ashamed to have put my brother in that financial bind. What if he did not have the means to pull off those additional expenses to his family budget? Of course, my could have sold the car to pay the lender off, but he chose not to. What a guy?
No wonder Solomon, that wealthy ancient monarch, who knew a whole lot about personal finance, regarded co-signing a debt as a trap, a snare that's worth losing sleep over. King Solomon advised that, if you've already co-signed, you should fight like a snared beast until you can get your name off that debt contract.
“ My child, if you have put up security for a friend’s debt or agreed to guarantee the debt of a stranger—if you have trapped yourself by your agreement and are caught by what you said— follow my advice and save yourself, for you have placed yourself at your friend’s mercy. Now swallow your pride; go and beg to have your name erased. Don’t put it off; do it now. Don’t rest until you do. Save yourself like a gazelle escaping from a hunter, like a bird fleeing from a net” (Proverbs 6:1–5).
It doesn't matter whether the loan is for a stranger, for your in-law, for your sibling, for your child, for a friend, or for your fiance: “ There’s danger in putting up security for a stranger’s debt; it’s safer not to guarantee another person’s debt” (Proverbs 11:15). “It’s poor judgment to guarantee another person’s debt or put up security for a friend” (Proverbs 17:18).
Solomon stressed that, if anything goes wrong, the lender will treat you as harshly as he would have the beneficiary of the loan: “Don’t agree to guarantee another person’s debt or put up security for someone else. If you can’t pay it, even your bed will be snatched from under you” (Proverbs 22:26 – 27).
Many an engaged or cohabiting couple has ignored Solomon's counsel to their bitter regret. How often has an unmarried couple say, “We're just like husband and wife now, so let's finance this car or get a home loan” only to suffer the painful consequences of being stuck with a former roommate's debt?
What a financial wrecking ball that can be!
Article submitted Monday, March 08, 2010 & read 509 times.
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