2 Reasons Co-signing is a Bad Idea – PGTF Principle 2

by Derek Clark

A man lacking in judgment strikes hands in pledge and puts up security for his neighbor. Proverbs 17:18

God is pretty clear in this verse that is doesn’t make sense to co-sign a loan for someone else. There are 2 very good reasons for this, and they are very similar to why you shouldn’t loan money to friends and family. First, if you co-sign on a loan, you’re probably going to end up paying the loan. Second, when that happens the relationship is going to be ruined. Simply put, it changes the relationship when you get a phone call because your friend isn’t paying his or her loan.

You Will Probably Pay the Loan

You know why your friend needs you to co-sign on their loan? It is because the bank doesn’t think they are credit worthy. The bank does this for a living. Granted they haven’t been that good at their job recently. On the other hand they have underestimated people being able to pay, so if they think your friend can’t pay, they probably can’t. If you aren’t prepared to pay the loan, don’t co-sign for it.

It Will Ruin the Relationship

“That may be true for other people, but it couldn’t ruin OUR friendship” Right. Think how you are going to feel when you get that call from the bank. Your friend promised they’d changed and would pay the loan. Unfortunately, that probably just isn’t true. The relationship will change whether you want it to or not.

I forgot to mention, after they stop paying the loan they will be too embarrassed to tell you. That means you are going to have a late payment show up on your credit score. Is the relationship still going to be good then? How about when you have trouble getting a loan because of it, or when you have to get a higher interest rate because your credit score went down? Believe me, the relationship will change. If you value the friendship, don’t co-sign for a loan.

{ 2 comments… read them below or add one }

Joe Plemon August 4, 2010 at 3:23 pm

Derek,
Thanks for the reminder about the down side of co-signing. I have seen relationships ruined just as you described. Come to think of it, there is no “upside” to co-signing!

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Khaleef @ KNS Financial August 10, 2010 at 8:29 am

I love when we can see the logic behind God’s will. I mean, we need to be obedient even when we don’t fully understand, but it’s great when we see the practical applications in our life! You did a great job of bringing them out here!

I actually wrote an article on the biblical view of cosigning, let me know what you think: http://knsfinancial.com/should-i-cosign-for-a-loan/

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