The Bible and The Bard Agree on this Financial Principle
Last summer my wife and I took off for an overnight getaway – just the two of us – and ended up in Staunton, VA near Charlottesville. The draw to this particular place was the American Shakespeare Center’s Blackfriars Theater . Here’s a blurb from their website:
The American Shakespeare Center is an internationally acclaimed theatre company that performs Shakespeare’s works under their original staging conditions — on a simple stage, without elaborate sets, and with the audience sharing the same light as the actors. Home to the ASC’s resident troupe, the Blackfriars Playhouse has been established as one of America’s premier Shakespeare destinations.
I was just searching for something to do and came across the town and the theater and was intrigued by them. So we made some reservations and set off to Staunton to see Shakespeare’s Merchant of Venice . I was blown away! The theater experience was amazing and I had so much fun that evening! If you are ever in the area, I would definitely recommend checking it out.
At the end of the play, I turned to my wife and said, "You know what the takeaway from this evening is? Never cosign a loan!"
C’mon – what else would you expect from a guy who has a personal finance blog!
As a reminder, here’s a brief summary of The Merchant of Venice from sparknotes.com :
Bassanio is desperately in need of money to court Portia, a wealthy heiress who lives in the city of Belmont. Bassanio asks Antonio for a loan in order to travel in style to Portia’s estate. Antonio agrees, but is unable to make the loan himself because his own money is all invested in a number of trade ships that are still at sea. Antonio suggests that Bassanio secure the loan from one of the city’s moneylenders and name Antonio as the loan’s guarantor. Antonio and Bassanio approach Shylock, a Jewish moneylender, for a loan. Shylock nurses a long-standing grudge against Antonio, who has made a habit of berating Shylock and other Jews for their usury, the practice of loaning money at exorbitant rates of interest, and who undermines their business by offering interest-free loans. Although Antonio refuses to apologize for his behavior, Shylock acts agreeably and offers to lend Bassanio three thousand ducats with no interest. Shylock adds, however, that should the loan go unpaid, Shylock will be entitled to a pound of Antonio’s own flesh.
So not only has Antonio cosigned the loan for his friend Bassanio but he has also put his life on the line for it! Of course, in the end things do not work out as bad as it could have been for Antonio…but if you want to know the entire story and experience it in a supremely entertaining way – go check out the Blackfriars Theater! (though that particular play is not playing there any more, I’m sure any of them would provide a wonderful evening)
The Bible cautions against cosigning loans also
I was amazed to learn that God actually talks about co-signing a loan in the Bible.
My child, if you have put up security for a friend’s debt or agreed to guarantee the debt of a stranger. If you have trapped yourself by your agreement and are caught by what you said—
follow my advice and save yourself, for you have placed yourself at your friend’s mercy.
Now swallow your pride; go and beg to have your name erased. Don’t put it off; do it now! Don’t rest until you do. Save yourself like a gazelle escaping from a hunter, like a bird fleeing from a net. Proverbs 6:1-5 (New Living Translation)
Again, cosigning a loan for someone is not a good thing to do. The Bible informs that you should "swallow your pride" and "go and beg" to have yourself removed from the loan. And don’t even wait until tomorrow it urges – "do it now!" This is serious and urgent advice! It certainly does not appear to me that cosigning a loan is something you should do.
Why does someone need a cosigner?
Remember, the reason that your friend needs a cosigner on a loan is because the bank (or whoever) is fairly confident that your friend will pay back the loan. If they thought your friend was good for the money, they would not have required a cosigner. And if you friend does not pay back the loan….guess who will be. So, my advice is (obviously) do not cosign a loan for someone else. And if you do consider cosigning a loan, assume that you will be the one who has to pay back the loan. Make sure that your finances, your family relationships, and you relationship with your friend will survive the probable event that you will be paying for it. It might be hard to say "no" to someone asking you to cosign for them, but that still might be a lot easier than doing serious damage to your personal finances and serious damage to your relationship with your spouse and/or family!
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Great advice – never co-sign a loan. There’s a reason they need a co-signer – because they’re unlikely to be able to pay the lender back! By the same token, never lend money to family. If you must give them money, do it as a gift.
@Pete – I definitely agree with your piece of advice about lending money to family. It sounds like such a good idea but as you point out on your site, “The borrower is servant to the lender” and that kind of relationship doesn’t mix well in the family dynamic.
Well said, and yes, co-signing on a loan is risky business. Even financial institutions have changed their guidelines for accepting co-signers, making it much more difficult. Consider having your estate plan prepared so you too will be in a position to say no when asked to be a co-signer. The American Academy of Estate Planning Attorneys (AAEPA) breaks Law Practice Management Systems for estate planning attorneys into a variety of areas as outlined in the Academy’s “Practice Building Handbook” which is an important cornerstone in the creation of both client and law firm business plans and estate plans.