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Surety: The Potential Costs of Cosigning a Loan

Any good professional financial planner would tell you their primary goal is to create financial security for their clients. They would organize your investments in such a way as to produce that desired outcome. They would also counsel you the best path to establishing financial security is to engage in wise personal behaviors. In other words, don’t do anything in the present to damage your financial picture and thus jeopardize a secure future.

The fact of the matter is, when you become surety (going into debt, cosigning) for another, it puts you at risk in the present. It is the risk you take that could have devastating affects on your long-term financial picture.

Words from Solomon on Surety

Solomon about surety often and he clearly did not think it a wise financial move.

In Proverbs 11:15 he says,

“He who is surety for a stranger will suffer, but one who hates being surety is secure.”

I have to admit, I’m a little baffled by this proverb because I can’t think of a single scenario in which I would cosign a loan for someone I knew nothing about. This move doesn’t make sense at all. But evidently Solomon knew of people that had done this or otherwise he wouldn’t have advised against it. He says those who choose to do this will suffer. In contrast, he says those who avoid becoming surety for a stranger are “secure.” Count me in the camp of those who want to be secure.

OK, so no surety for a stranger. But, you may ask, “What about for a friend, a really good friend? I mean I have known him for years. What is the risk in helping him?”

Well, Solomon didn’t think too highly of that either. He says in Proverbs 17:8,

“A man devoid of understanding shakes hands in a pledge, and becomes surety for his friend.”

Devoid of understanding…that’s a powerful phrase. In other words, you are completely lacking in sense and reason if you sign on the dotted line for your friend. Solomon must have known something here about the permanent damage cosigning could do to a friendship.

All right then…lets try one more relationship. Surely it’s appropriate to become surety for a family member. What is the worst that could come from that? I mean, its family. Blood. There is no risk there, right?

Well, interestingly enough, Solomon had no proverb about becoming surety for a family member (at least that I can find yet). Maybe he didn’t think that it was a problem. Or maybe he never had to face that situation. We know he was extremely wealthy and I’m sure that wealth and the advantages that go with it trickled down his family tree. So maybe no one in his family ever came and asked him to become surety for them.

The Dangerous Costs of Becoming Surety

We do get a glimpse of the potential dangers of becoming surety for a family member in the book of Genesis.  You may recall from my post “Why to Develop a Strategic Plan,” that Joseph became second in command of all of Egypt because of the ability God gave him to interpret the dreams of Pharaoh. Joseph is able to lead Egypt in preparing food reserves for a massive seven-year drought that devastated the region. It even affected his family who lived far back in his homeland of Canaan.

When Joseph’s family needed food they had gone to Egypt (Genesis 42). They were brought before Joseph to purchase grain, but did not recognize him after all the years they had been separated. He questioned them thoroughly about their motives for coming to Egypt and about their family. To prove they were not spies, he told them he would not allow them to purchase grain again unless they brought their younger brother Benjamin with them (who didn’t make the first trip because his father, Jacob, was afraid something would happen to him).

Of course, that food did not last forever, and in Genesis 43 we read that Joseph’s brothers are once again faced with the prospects of returning to Egypt to buy more grain. They know they can’t go without Benjamin, but Jacob is still reluctant to let him go. So in Genesis 43:8, Judah steps in and addresses his father by saying,

“Send the lad with me, and we will arise and go, that we may live and not die, both we and you and also our little ones. I myself will be surety for him; from my hand you shall require him. If I do not bring him back to you and set him before you, then let me bear the blame forever.”

So they go, and Judah is now on the hook for his brother Benjamin.

In a series of events engineered by Joseph as a test for his brothers, Benjamin is accused of stealing Joseph’s personal silver cup (Genesis 44). The punishment for such a crime is lifelong servitude to Joseph. Judah knows that if they return home without Benjamin, their father Jacob will be grief stricken to the point of death. So in Genesis 44:18-34, he passionately intercedes on Benjamin’s behalf, explains to Joseph that he had become surety for Benjamin and offers himself as a slave to Joseph forever in Benjamin’s place.

Do you see what is about to happen here? Judah’s decision to become surety for Benjamin is about to cost him his freedom…for life!

Now we know this story turns out positive. Joseph reveals himself to his brothers, they have a tearful and joyful family reunion and Judah is not forced into lifelong slavery. And you could argue that Judah acted in a noble and courageous fashion by becoming surety for Benjamin so the family would survive.

But again, what was the potential cost for Judah? Was it worth the risk? What if someone else had been in power in Egypt? What if Joseph had been bitter at them for their early childhood treatment of him? The outcome could have been drastically different. His surety pledge would have had great personal consequences.

So we have three different relationships (strangers, friends and family) where surety isn’t portrayed as being positive. So what do you do if you become surety for someone? Is there a way to get out of it? Stay tuned…

Prior Post: Surety: Do You Really Want to Cosign That Loan?

Next Post: Surety: How To Get Out of a Cosigned Loan

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