Loans today are, in one sense, a necessary evil. As much as we preach and teach to save and not take out a loan, sometimes it becomes very difficult to move forward without having one!
Yet, it may not be you that needs the loan. It may be a child, family member, co-worker or friend that needs a loan and they cannot get one. And…you very possibly…may be in their target scope. How so? As a cosigner for the loan that they need.
A Christian Perspective on Loans
What does the Bible say about taking out loans?
- The rich rules over the poor, and the borrower is the slave of the lender. (Proverbs 22:7, ESV) Simply stated, the one that borrows is enslaved to the one that they borrowed from until that debt is cleared.
- Are loans evil? Though debt is unwise, it is not necessarily sinful.
- What about mortgages and student loans?
- There needs to be a positive return on the expense, or for an appreciating asset.
- Borrowing for a depreciating asset is just not wise stewardship.
- Should Christians take out loans?
- This is a question that we get periodically. I would say that it depends. I would refer you to episode #41 of The Stewardology Podcast to answer this question.
What is cosigning a loan?
Actual definition according to the US Federal Trade Commission – A cosigner is someone who agrees to be responsible for someone else’s debt. If you cosign someone’s loan and that person doesn’t make payments on the loan or defaults, you’ll have to repay the loan.
What would be the implications of cosigning a loan? As the US FTC stated, by cosigning a loan, you are willingly assuming the debt and repayment of that debt if the borrower defaults on the loan. This is a very serious undertaking if you personally do not have the liquidity or the monthly cash flow to assume the payments.
What does the Bible say about cosigning a loan?
Proverbs are proverbially true, meaning that they are true most of the time. However, we can’t make these proverbs a black and white “sin issue.” So, with that in mind, let’s see what the Word of God says specifically about co-signing loans.
- “He who puts up security for another will surely suffer, but whoever refuses to strike hands in pledge is safe.” (Proverbs 11:15, NIV84)
- “The rich rule over the poor, and the borrower is servant to the lender.” (Proverbs 22:7, NIV84)
- “A man lacking in judgment strikes hands in pledge and puts up security for his neighbor.” (Proverbs 17:18, NIV84)
- “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, NIV84)
- “My son, if you have put up security for your neighbor, if you have struck hands in pledge for another, if you have been trapped by what you said, ensnared by the words of your mouth, then do this, my son, to free yourself, since you have fallen into your neighbor’s hands: Go and humble yourself; press your plea with your neighbor! Allow no sleep to your eyes, no slumber to your eyelids.” (Proverbs 6:1–4, NIV84)
- “It is better not to vow than to make a vow and not fulfill it.” (Ecclesiastes 5:5, NIV84)
Consensus: It is generally unwise to cosign a loan, and could put you in unnecessary financial danger.
Is It Objectively Wrong or Sinful to Cosign a Loan?
- Proverbs states that there is danger in cosigning, and a wise person doesn’t do it haphazardly. It is generally not something we recommend because of the potential financial and relational impact that could come your way if there is a default in the loan
- However, it is not objectively wrong or sinful to cosign a loan. From what we are understanding from the Scriptures, it is really a “wise vs. foolish” scenario, not a sinful one. Yet, there has to be a reason why this is categorized in the “foolish” arena! It is most likely there because of the potential financial and stewardship impact that it could cause, not even saying as mentioned moments ago, the relational impact that could turn out to be a life-long schism between individuals and even families.
The Impact of Cosigning a Loan
Cosigning a loan will put unnecessary strain on:
- Your own relationships with the borrower(s).
- Your own Credit Score.
- Your own borrowing power.
- Your own risk of defaulting on a loan you didn’t take.
I have Cosigned a Loan. What do I do?
According to the Proverbs 6:1–4 passage that we read earlier, do everything you can to get out of it. No slumber, no sleep! Work toward getting out of it, and do so quickly.
I have Cosigned a Loan AND THEY’VE STOPPED PAYING. What do I do?
- Because you cosigned the loan, you are obligated to make payments. Make payments, keep diligent records.
- If you cannot afford the payments, you will need to speak to the loan company and see what, if anything at all can be done to free you, or lessen the monthly financial burden.
- PAY THE LOAN! If you don’t pay, it will impact your credit score and potentially create other financial issues in the future.
- Speak to the person that you cosigned the loan for and seek financial counseling for them, and possibly for you!
How do I handle a co-signing request?
SAY NO. Okay, say it nicely, but SAY NO! If you do consider saying yes, calculate the cost. Give it plenty of time to pray over it and clearly there are to be no immediate decisions, no matter what! If that person loses the car of their dreams, so what!
- Cosigning a loan can present risks that could be financially and relationally crippling! Do all you can to avoid those unnecessary risks.
- Calculate the risk and give yourself (and your spouse) plenty of time to pray over the decision.
- Remember that NO is a good (and wise) response to cosigning a loan!
- If there were no major issues or complications of cosigning loans, the Scriptures would not have had anything to say about it.
- And remember this proverb, “A man lacking in judgment strikes hands in pledge and puts up security for his neighbor.” (Proverbs 17:18, NIV84)
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