Updated: Apr 1, 2019
We have recently been bombarded with a common question about Lending and Borrowing. This post will shed some light around a specific type of Borrowing and not just Borrowing in general.
The Question that KINGDOM BUSINESS AND SUPERNATURAL MINISTRY have been asked to Answer is ''Should a Christian co-sign a loan?". We have promised that we will be answering this question via a post. We are extremely sorry about the long post, but we truly believe that it is a vital and a critical question to answer. We have seen so much people in trouble from not being careful on the above mentioned topic.
When you co-sign a loan, you promise to pay off the loan in the event the primary borrower is unable to pay off the loan. A co-signer becomes necessary when the person applying for the loan doesn't have sufficient credit history, reliability or income to get the loan on his own. For example, people who have a history of defaulting on loan payments likely wouldn't be approved, neither would a recent graduate who hasn't had time to build credit. If you've been asked to co-sign a loan or find yourself in need of a co-signer, here's how it works.
Should I co-sign a loan? It's probably most common for parents to co-sign loans for their children who have yet to build a credit history, but other relatives and friends may also come to you. No matter who asks you to act as a co-signer, it's a decision you should weigh carefully. After all, you're being asked because the borrower was turned down. If you trust the borrower and have confidence in his or her ability to repay the loan, co-signing can be a generous way to help a friend or family member in need. First of all, to be eligible to co-sign, you have to have a strong credit score. If you're able to co-sign, make sure you have an accurate picture of what it will mean to you and your financial situation.
Be sure you can afford to pay off the debt if the borrower defaults. If you had to assume the payments for this loan and it would hurt you financially, you probably should not co-sign the loan. Get copies of all the loan paperwork, and be sure you understand the terms fully before agreeing. Sometimes the responsibility of the co-signer varies, and you'll want to take note of when you'll be contacted or what you'll be responsible for paying.
Consider what co-signing a loan will do to your credit score; this loan will appear on your credit report. If you plan to take out a loan yourself in the near future, you may not want to co-sign now as it will increase your apparent debt load and could potentially hurt your ability to be approved.
In answer to the question of whether a Christian should co-sign a loan, the passages from the wisdom literature in the book of Proverbs come to mind.
Solomon's words of wisdom in the book of Proverbs come from God and are God-Breathed. Proverbs 22:26-27 states, "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.” This would seem to indicate that God advises against such a practice but wisdom and prayer must be the centre of it all to make the correct decision because after all it does say " IF YOU LACK THE MEANS TO PAY!!!"
Proverbs 11:15 states: "He who puts up security for another will surely suffer, but whoever refuses to strike hands in pledge is safe." These words were written centuries ago to warn men of what is still very common ground for failure in life and ruin in business. To put up security for a stranger is a most dangerous thing, as thousands have learned to their sorrow. Many of us will do this for a friend long known and trusted; but no wise man will act for a stranger. Often, parents will sign notes or loans with their children. There is a principle seen in these biblical words of wisdom. No one should co-sign (guarantee) with another on any amount which possibly could fall back upon them and become their responsibility to pay.
Whether or not it is wise or safe to co-sign a loan for a relative or trusted friend is difficult to say, and much depends on the circumstances. One needs to be discerning, commit the situation to prayer, and follow the Lord's leading where known and trusted people are involved, and one must be able to pay should it ever become necessary. But this is definitely not something to do for strangers and those barely known to us.