Why Is It Unwise to Lend, Borrow or Cosign Among Family and Close Friends? – Part 2

Today’s post is the third and final post in this series from Jim Newheiser’s new book, Money, Debt, and Finances.

What Should You Say When They Ask?

When a family member or friend approaches you asking you to cosign or to borrow money, you are probably under a lot of pressure. You need to make your decision based upon what you believe would be most pleasing to the Lord in light of your stewardship of what he has given you (2 Cor. 5:9). If you decide that it would not be wise for you to agree, first pray that the Lord will help you to speak wisely and gently and that your words will be well received. “Sweetness of speech increases persuasiveness… The heart of the wise instructs his mouth and adds persuasiveness to his lips” (Prov. 16:21b; 23; also see 25:1). You might briefly explain why you are unwilling in light of biblical warnings against debt and cosigning, your own stewardship of the resources God has entrusted to you, and your concern that money matters among family members puts relationships at risk. They may not understand or they may even be angry. They 143 may accuse you of being greedy and shirking family responsibility, or claim that they would help you if you were in need or that you owe it to them for some past kindness they have shown you. You may sense that they are being greedy, irresponsible, and envious, but don’t argue or quarrel with them. “Keeping away from strife is an honor for a man, but any fool will quarrel” (Prov. 20:3; also see 17:14). If you offer them your lecture on the glories of living on a budget and the evils of debt they may not respond well. Remember that “A gentle answer turns away wrath” (Prov. 15:1). When the pressure becomes intense remember, “The fear of man brings a snare, but he who trusts in the LORD will be exalted” (Prov. 29:25). If you go against biblical wisdom because you want to please men you may wind up being caught in the snare of someone else’s debt. You must do what you believe would please God (Gal. 1:10).

Is It Always Sinful to Cosign or to Lend Money to Family and Friends?

While Scripture warns that making oneself liable for someone else’s debt is extremely risky and usually very unwise, it is not necessarily sinful. If you want to lend your teenager money to buy his first car, or if you want to loan your daughter and her husband money for the down payment on their first house, or if you want to lend your grandson money for college, you are free to do so. I would encourage, however, the following caveats:

  1. Don’t lend or cosign for money you can’t afford to lose. If the borrower’s default would imperil your ability to take care of your family’s needs (1 Tim. 5:8), it would be unwise for you to get involved.
  2. Make sure that the detailed terms of the loan are in writing. This includes what will be done in case of default. Family members and friends often have conflicting expectations regarding financial matters, with each expecting to be treated especially well by their relatives. It is far better and wiser to work these things out before there is a problem.
  3. Be sure that you and your spouse are in full agreement about what you are about to do (if you are married).
  4. Determine now that in case the money is not repaid that you are entrusting your resources to God and that you will not be angry, bitter, or vengeful (Rom. 12:19).
  5. If there is a genuine need and you can afford to help, consider giving the money as a gift, thus avoiding the potential problems and conflicts a loan may create.
  6. If there is not a genuine need, don’t enable your family member’s financial irresponsibility and endanger relationships by giving them the money.

Neither a Borrower or a Lender Be

I have been primarily addressing those who might be asked to lend money to relatives. Perhaps you are in the opposite situation and are considering asking a prosperous relative for a loan. Here are some things you should consider in light of what I have already written above. See the situation from their side (Phil. 2:3–4). “In everything, therefore, treat people in the same way you want them to treat you, for this is the Law and the Prophets” (Matt. 7:12).

  1. You may be putting your family member in a very awkward position by asking them to help you in this way.
  2. You may not fully grasp the amount of financial and relational risk you are asking them to take on your behalf.
  3. Consider whether your need could be met by exercising greater wisdom in your personal finances. Is the need real and immediate? Or are you being unwise or impatient?
  4. If your need is valid, for the sake of relationships, consider borrowing from a bank instead. The greater amount of interest you may have to pay may be worth it because you will avoid creating tension and risk in family relationships. Summary Financial matters, especially loans, among family and close friends, are very risky both economically and relationaly. Having the courage to say no in the short term may prevent many troubles in the long term.

*Today’s post is three of three from Jim Newheiser’s new book, Money, Debt, and Finances. Remember to enter the giveaway for a chance to win one of five copies of Money, Debt, and Finances.

Questions for Reflection

  1. What are several reasons why it is unwise to cosign?
  2. What are several reasons why it is almost always unwise to lend money to or borrow money from family members?
  3. Is it always sinful to cosign or to lend money to family members?
  4. When might it be right to lend money to relatives?
  5. What is a wise way to answer a family member who wants you to cosign for them?

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