So a friend or even a relative has come to you explaining how they found this great car. They tell you it has low mileage, ice cold air, runs smooth. It has new tires, and for a three year old car the price is fantastic.
They go on and on about the car, how it is just what they were looking for. They ask if you will come take a look at the car, take it for a test drive so you can give them your honest opinion whether or not this car is in good shape and a good deal.
You are flattered that they have such trust in you and are glad to take them up on the offer to help. You look at the car and even agree it is in great shape and the price isn’t bad and mention that with a little bit of negotiating they price would be perfect.
Sales Pitch
Now that they have you agreeing with them about the car they mention that they have the down payment, and remind you about that new job they just got five months ago so making the payments will be no problem. They finish that statement with a “but.” Even though they have the down payment, and can make the payments, they don’t qualify for a loan and they ask if you would be willing to co-sign for them. They give you every assurance that they can make the payments and that you would have nothing to worry about. Can you help them out and just “give them your signature?”
What just happened? Lets take a look at this. They have the down payment, and income from a job of five months that will more than cover the monthly payments. Why would they need a co-signer? Simple, contrary to the surface indications that they can afford this car, the bank as proof that this person does not make consistent payments on anything. The bank considers this person too high a risk to lend them money without the guarantee, in the form of a signature, from someone who has a proven track record of making payments. That way, when your friend or relative misses a payment or two, or three (and they will, otherwise they wouldn’t need the co-signer) the bank can and will count on you to cover the loan.
Meaning of Co-Sign
This concept of co-signing isn’t a new one. For thousands of years people have been guaranteeing the loans of others and are then stuck holding the bag (paying off the loan)
It’s stupid to guarantee someone else’s loan. Proverbs 17:18
So if the concept of co-signing or guaranteeing has been something so bad and common that God felt it necessary to put a warning in the Bible about it, it must be a warning we should heed.
Don’t Do It
If it were me, I would never co-sign a loan, regardless of amount, for anyone. If co-signing is required that is the banks way of saying “this person can’t manage money, can’t be trusted with this money.”
Are you mean, unloving or not a good friend if you don’t “help out” by co-signing, actually you are just the opposite. You are a person who is not willing to enable someone else to continue to mis-manage their money. You are also someone who is following Biblical guidance.
The best help you can give a person in this situation is to sit down with them, help them work out a good budget and teach them how to manage their money you could even give them a copy of the Ultimate Debt Guide. You can use that guide to help teach them how to save money for the car so they don’t have to rely on a bank for a loan at all. After all, the best way to buy a good used car is with cash in hand.
{ 5 comments… read them below or add one }
Great post Kim. I have dealt with this endless amount of times in the mortgage business…… it drove me nuts. People need to understand that co-signer is code word for “co-bondage”.
Run from them when you someone asks you to become a slave with them……
Gregg, love that term “co-bondage” that is dead on. Thanks!!
Honestly I had no idea people did this. I thought co-signing is something you do for your kid’s first car or maybe a co-habitation couple does for a house. I would imagine people co-sign because they are the type of people that would give the shirt off their back for someone. Which, I suppose to them is great, but I’m sure they are always wondering why they are taken advantage of all the time as well.
Russ you are correct, most people co-sign because they thing they are helping. Instead they are only building to path of much pain for themselves as well as potentially breaking or severely hurting a relationship.
OMG I was about to co-sign for a friend of mine…. but you are right if the bank cannot trust them to make the monthly payments why should I? It’s not my resposibility if they want that nice car… they could save up the money.