Should You Cosign On A Loan?
I’m a member of an investment club (a chama), with 9 other ladies, much older than me. In fact, this is my Mom’s club, she invited me to join after my original investment club went burst. I don’t socialize much with the other members, but this week something interesting happened.
One of the members asked me to co-sign for her on a loan she was borrowing from the club. Members can borrow up to three times their savings, as long as someone co-signs for the excess. I didn’t know what to say. On one hand, I didn’t want to cause tension by refusing to co-sign, on the other hand, I didn’t feel confident co-signing for someone I didn’t really know. she had 8 other members who knew her well, why not ask them to?
As I thought about what to tell her, my mind was drawn to two Bible verses that talk about this.
Proverbs 22:26-27: Be not one of those who give pledges, who put up security for debts. If you have nothing with which to pay, why should your bed be taken from under you.
Proverbs 11:15: Whoever puts up security for a stranger will surely suffer harm. But he who hates striking hands in pledge is secure.
As a Christian, I believe the Bible is God inspired and all sufficient for good living, and it gives pretty good money management advice. I will be sharing some of the advice on this blog on Sundays when I can, and even if you’re not a Christian, I believe it will serve you well.
The book of Proverbs was written by King Solomon, believed to be the wisest man ever lived. In the two verses above, he warns us against giving pledges and co-signing on others’ borrowing. He says that if you put up security for a debt, and you have nothing to pay, you will lose your assets. In real life, this has been known to happen. You co-sign, for whatever reason the borrower is unable to pay and the bank comes after you.
So should we act as guarantors for others’ borrowing?
Being a guarantor is a terrible idea. Unless it’s someone so close to you that you don’t mind losing your money should they fail to repay. Which means we can probably only co-sign for our family and very close friends, and even then, it has been known to permanently ruin relationships.
What about SACCOs?
SACCOs usually allow members to borrow up to three times their savings, as long as it’s secured on a fellow member’s shares, or the individual’s assets. My advice when it comes to SACCO borrowing is that you can do one of three things:
1. Join the SACCO with a close friend or family with whom you can co-sign each other’s borrowing.
2. Restrict your borrowing to the extent of your shares. This is a great target to work towards because it means you never borrow more than you have in savings.
3. Use your other assets to guarantee your borrowing. If you have a car, or a plot of land, most SACCOs will allow you to borrow in excess of your savings, putting up these things as security.
What are your thoughts? Have you ever cosigned for a loan? How did it work out? Have you ever had to repay for someone you had co-signed for then they failed to pay up? Share your views int he comments section, I appreciate it.
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