Good Morning Everyone,
Our theme for this month: “Wisdom from Proverbs”
Our Bible verse for today: “My son, if you have put up security for your neighbor, or entered into an agreement with a stranger, you have been trapped by the words of your lips – ensnared by the words of your mouth.” Proverbs 6:1-2 (HCSB)
Our thought for today: “Don’t co-sign loans.”
Have you ever co-signed a loan for someone? I’ve done it on several occasions to help one of my children buy a car, but never for anyone else. Co-signing has become an increasingly common practice among lending institutions in our day. The borrower either has no credit history of their own, or they have a poor one and therefore the bank requires someone with better credit to share the risk of the loan by co-signing for it. The co-signer then assumes responsibility for repaying the loan in the event the borrower is unable to.
In Proverbs 6:1-2 Solomon warns against this practice. So does Dave Ramsey. In his books and seminars such as “Financial Peace University” and “Total Money Makeover” Dave says that if you’re going to co-sign for someone you might as well assume that the loan is yours and you need to make plans to pay it. That doesn’t happen in every case, but it does happen often enough for someone like Dave Ramsey (and Solomon) to urge us not to do it.
There are many reasons to avoid co-signing. For one thing, you’re enabling someone else to go into debt. It’s always better to save your money and to pay cash for whatever it is you want, limiting your purchase to what you actually have the cash for.
Second, by co-signing you may be enabling bad financial practices in the borrower. If the person needs a co-signer it could mean that they haven’t handled their money well up to this point and that’s why they aren’t in a position to get the loan to begin with. You getting the loan for them won’t change their bad financial habits it just means that you’re now sharing the risk with them.
Third, if the person is a little irresponsible in their financial habits, having you as a co-signer lessens their incentive to pay the loan back. That’s especially true if they think you have lots of money and can therefore easily make the payments for them.
And then of course, all of that creates the potential for broken relationships.
I don’t mean to say that co-signing is never OK. I personally don’t regret having co-signed for my children so they could each get a decent car and establish credit of their own. I’ve done that once for each of them and each time it turned out well. But I would not do it as a matter of practice and I would not do it for anyone other than my children. Dave Ramsey, King Solomon, and I all recommend that you don’t co-sign loans.
God Bless,
Pastor Jim
Oak Hill Baptist Church 