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Surety: Do You Really Want to Cosign That Loan?

There is a curious money word in the Bible – found mostly in Proverbs – that needs some defining. It’s the word “surety.” Surety refers to the act (or promise) of a person to take on or assume the responsibility for the debt obligation of someone else if that person cannot repay their loan. In essence, you become the guarantor of the loan by being willing to provide this service.

This type of arrangement is most common when the lender of money has a question or some doubt the borrower may be able to repay the loan. So they will require a third party (you the guarantor) to step forward and legally enter into the borrowing contract. The lender does this to reduce their risk and, in some cases, this may actually lower the interest that is charged to the borrower.

An Example of Surety

So, for example, your son wants to buy a $8,000 car.

He has a small down payment, no credit history, and a minimal income stream each month. He has promised to find a second job to increase his income so he can make the car payments. The bank sees the risk in granting a loan to someone with few financial resources but they are willing to enter the contract if you cosign (become surety) for the car loan. You agree to take on this responsibility and put your signature down on the loan documents with your sons.

What has just happened here is that you have gone into debt. Make no mistake about it…you are responsible for this debt obligation. Granted, your son is the first person responsible, but if for some reason he cannot or chooses to not pay the debt back, rest assured the bank will come looking for you. You will have to come up with the money to repay the loan.

And the huge side issue is that your relationship with your son will probably turn real ugly, real quick as you try to track him down and find out why he skipped out on paying back his loan. This will become one of those relationship nightmares.

The Bible’s Take on Surety

The Bible does not speak to highly of becoming surety for someone. In fact, in Proverbs 22:26 it says,

“Do not be one of those who shakes hands in a pledge, one of those who is surety for debts.”

I love that phrase – “one of those.” Can’t you just hear the tone in Solomon’s voice (or see his eyes roll) as he writes those words…”Don’t be one of those people, stupid!”

OK…maybe his language was a little loftier than that. After all, the Bible does describe him as the wisest and wealthiest man that ever lived.  Can’t you just see all the people lining up to take advantage of the king’s wealth? I would highly assume that with all his riches he had at one point, maybe in a weak emotional moment, chosen to become surety for someone and it had backfired. So perhaps he knew a thing or two about this.

The Dangers of Becoming Surety For Someone

There are great financial and emotional dangers in cosigning for a debt obligation. Look at the follow up warning Solomon gives in verse 27. He says,

“If you have nothing with which to pay, why should he take away your bed from under you?”

That is an interesting image…someone coming in and taking your very bed (or anything else they want) as a form of payment because you were unable to pay off the debt. Why would you be willing put yourself in a position to let that happen?

I know, I know. We think we are being nice when we cosign. We think we are helping someone out. We think we are helping a friend or family member move forward or get off to a better financial start in their life. And helping someone out in this way makes us feel really good about ourselves.

However, this person you think you are helping, you are actually hurting. They are not finding their own way. You are allowing them to take a financial shortcut.

Have you ever thought, “Maybe they should not have this car I am cosigning for because they can’t really afford it?” Perhaps it would help them better in the long run if they develop the financial discipline to purchase this item by themselves instead of relying on you.

Choose today not to be “one of those” surety people.

Have you ever been burned by cosigning for a loan?

Prior Post: All Work and No Play: The Importance of Rest

Next Post: Surety: The Potential Costs of Cosigning a Loan

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