We often receive questions like this one: “I’ve cosigned on a car loan for my nephew and he’s not making the payments. What can I do?”
It’s sad because the only reason someone would cosign a loan is to help someone else. And far too often, it doesn’t end well. At least one survey shows that if you cosign, you have a 40% chance of having to pay the loan yourself because the primary signer either can’t or won’t make the payments.
And if that’s not bad enough, it’s usually a family member or friend who’ll leave you holding the bag, damaging your relationship as well your finances.
Now, the best way to keep that from happening is to simply not do it. Remember the Ben Franklin quote, “An ounce of prevention is worth a pound of cure?” He was actually talking about fire safety at the time, but the concept certainly applies to co-signing today, which could “burn down” your finances. The best way to get out of it is to never get into it.
By the way, it seems Mr. Franklin actually borrowed that “ounce of prevention” idea from Proverbs 22:30 which reads, “The prudent see danger and take refuge, but the simple keep going and pay the penalty.”
The Bible actually has a lot to say specifically about cosigning — and for good reason. Christians are often confused about cosigning. The Bible tells us to care for our family and neighbors and to help those who can’t help themselves. Wouldn’t that include helping someone get a loan?
The Bible says no, and it leaves no room for misinterpretation. It warns us over and over not to do it.
Proverbs 11:15 says not to pledge “surety” for another, meaning don’t co-sign a loan for another who doesn’t qualify on his own.
And Proverbs 17:18 reads, “One who lacks sense gives a pledge and puts up security in the presence of his neighbor.”
Then in Proverbs 22:26-27 we find, “Be not one of those who give pledges, who puts up security for debts. If you have nothing with which to pay, why should your bed be taken from under you?”
We mentioned that four in 10 people who cosign get stuck paying off the loan. But studies also show that nearly a third suffer damage to their credit, and a quarter say the experience damaged their relationship with the primary signer. Proverbs isn’t one of the “Wisdom Books” for nothing.
Okay, by now you’re convinced never to cosign. But what if you’ve already done it? What can you do about it?
The thing you have to remember is that as a co-signer, you’re just as responsible for the loan as the primary signer. If that person can’t or won’t make the payments, there’s no way you can walk away from it without severely damaging your credit. The loan must be satisfied.
First, try refinancing. Your legal responsibility to repay the loan goes away if the other person refinances without you. If you or the other person has been making payments for some time, the outstanding balance should now be lower than the original amount. That could allow the primary signer to qualify without you.
Next, you can try speeding up the loan payments by offering an incentive to the primary signer. Offer to match any payments he or she makes. You might still end up paying half the loan, but that’s better than the whole thing and it will keep the account in good standing.
Now, if the loan was for an automobile, you can ask the primary signer to sign the title over to you and you take possession. Then you’ll at least have use of the vehicle while you’re paying it off. You can also then sell it at some point and recoup part of your loss.
Finally, you can try doing a credit “makeover” on the primary signer. Help them get on a budget, teach them the importance of paying bills on time, saving, and being responsible. Eventually, they’ll be able to refinance to get you out of the loan. It’s an approach that will have long-lasting, beneficial results.
Okay, those are some things you can do if you’ve cosigned a loan and you’re stuck making payments. We hope you find them useful.
On today’s program, Rob also answers listener questions:
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Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network as well as American Family Radio. Visit our website at FaithFi.comwhere you can join the FaithFi Community, and give as we expand our outreach.
Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.
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