Should you co-sign?

Should you co-sign for a friend, a family member or your child? The answer is absolutely, positively, a resounding NO! The Federal Trade Commission conducted a study on this issue and found that 50% of those who co-signed for bank loans were stuck making the payments when the person they co-signed for defaulted on the loan.

That means that half of the time someone co-signs they are left “holding the bag.” What happens when you cosign? You are basically assuming the full responsibility of that person’s debt. Stop and think a moment. Here is an individual who the banks do not feel is credit worthy to loan them money. The banks are in the business of loaning money. They assess the risk of a person’s probability of defaulting on the loan. When the bank says they need a co-signer for the loan, they are basically saying that the person’s risk of never paying them back is extremely high.

Let’s face it, you are not a bank. You don’t know the person’s credit history. Maybe if they’re your young adult child you do. But even then, if they are not living with you, do you know their total debt or their complete financial situation?

Instead of co-signing for the loan, you need to teach your child to save for their first car, the deposit of their first apartment, or whatever it is that they want. Teach them that debt is not right. Saving for what you need and want is the best way to go.

Scripture tells us, It is poor judgment to co-sign a friend’s note, to become responsible for a neighbor’s debts (NLT). The phrase “poor judgment” is literally translated “destitute of mind!”

People who co-sign end-up “destitute of mind” because now they don’t have the money to pay a debt for which they never received any benefit. How terrible it is to have saved and budgeted only to find that now your savings and your budget are blown by unexpected debt.

Proverbs 22:26-27 reinforces the above, “Do not be among those who give pledges, among those who become guarantors for debts. If you have nothing with which to repay, why should he take your bed for under you?”

I hope that when someone comes to you and asks you to co-sign, no matter if they are your child, your parent, or your dearest friend, you will have the courage to tell them, No.

What happens if you have already co-signed? You need to get out of it as quickly as possible. Again scripture tells us, “If you co-sign a loan for a friend or guarantee the debt of someone you hardly know—if you have trapped yourself by your agreement and are caught by what you said—quick, get out of it if you possibly can! 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 deer escaping from a hunter, like a bird fleeing from a net.”  Proverbs 6:1-5  (NLT). Do whatever it takes to get you out.