NW Answers: Co-Signing a Loan

NW Answers: Co-Signing a Loan

Mike, would you co-sign a loan so one of your kids could buy a vehicle?

Great question.

My dad co-signed for me to purchase a truck when I was a rising sophomore in college. I was thankful, and it was never a problem. I paid the loan off in full. (All 60 payments at $121.83)

But, since then I’ve been through Crown Financial Ministries small group study and pay attention to other financial stewardship teachings. I have a better understanding of God’s plans for how we are to manage our finances. (Not to say that we get it all right, we certainly don’t.) The Bible says plenty about not taking on the debts of others. (See the articles below.)

I also think I wouldn’t do it because I don’t want to establish that precedent for our kids. I don’t want to be an ogre, but I encourage our kids to avoid debt as much as possible and especially avoid overextending themselves. Let’s face it, that’s why a co-signer is necessary. So, I wouldn’t co-sign for them. I don’t think it’s wise and I don’t want to establish that precedent for our kids.

The lender has determined that the borrower is not a good risk, so they need assurance that the loan will be repaid. They need ‘surety’.

One of our sons is anxious to purchase a truck. Stacy and I aren’t convinced that it’s necessary, prudent or wise. We’ve had some hard conversations about the situation but also some very helpful conversations about what owning a vehicle actually costs and how it would likely create other opportunities to spend money that would be in shorter supply.

Our son knows that we will not co-sign for him. (Trouble is, he could secure a loan for a surprisingly large sum of money without our involvement.) He also knows that we’re open to helping him find an affordable, reliable vehicle that will meet his needs a bit later. He’s working hard and saving his money.

Here are a couple of helpful articles:

Understanding Surety

“Surety is a principle—not a law. Although the violation of the principle does not carry punishment–like violating a law of God would–it’s violation does carry negative consequences.”

Co-Signing Loans for Others: What the Bible Says

“The reason the person needs a co-signer is because the lender doesn’t have confidence he/she can pay.  Could it be that we perpetuate the problems of poor credit or money management issues by co-signing?” 

Co-Signing is dumb – Ask Dave

“The thing you just need to understand is since your sister’s not paying it, you will. They’re going to treat you just like it was your loan. That is what a co-sign is. You are a co-maker on the loan. Both of you borrowed the money. That’s what the law says about that.”