In March 2003, I decided to purchase a brand new Honda Element. But after I made a down payment on the car and traded in my older vehicle, I still owed money on the purchase price. So, I borrowed the remaining principal through American Honda Finance Corporation. Thankfully, I have paid off the entire debt and now own the car outright; but that monthly payment was a real hassle for the entire time I had to pay it.
My personal experience of debt confirms the truth of Proverbs 22:7:
The rich rule over the poor,
and the borrower is servant to the lender.
One time, I calculated that 25 out of my 245 work days went toward paying off my car loan. Now the fruit of those 25 work days goes into my pocket, or rather my wife’s, which I guess amounts to the same thing. Proverbs 22:7 teaches us that we should be wary of taking on debt because it restricts our financial independence.
Interestingly, Proverbs also warns us against the foolishness and danger of co-signing another person’s loan.
A man lacking in judgment strikes hands in pledge
and puts up security for his neighbor (17:18).
He who puts up security for another will surely suffer,
but whoever refuses to strike hands in pledge is safe (11:15).
The basic danger is that the other person will default on the loan, and we’ll be left holding the bag.
Do not be a man who strikes hands in pledge
or puts up security for debts;
if you lack the means to pay,
your very bed will be snatched from under you (22:26-27).
The safest course of action, then, is not to co-sign a loan at all. If we do, however, Proverbs advises us to secure collateral, especially if the other person is not the world’s wisest money manager. Two proverbs—20:16 and 27:13—make an identical point:
Take the garment of one who puts up security for a stranger;
hold it in pledge if he does it for a wayward woman.
Another way to make the loan a bit safer is to charge interest on it, although Proverbs warns about this practice as well.
He who increases his wealth by exorbitant interest
amasses it for another, who will be kind to the poor (28:8).
A good example of the truth of this Proverb is the collapse of the sub-prime mortgage market. All those mortgage companies that stood to make a killing on adjustable rate mortgages are now finding themselves in hock to foreign investors.
So, if we’re supposed to avoid borrowing, lending, and co-signing loans, how can we help people with financial needs? Proverbs 11:24-26 tells us:
One man gives freely, yet gains even more;
another withholds unduly, but comes to poverty.
A generous man will prosper;
he who refreshes others will himself be refreshed.
People curse the man who hoards grain,
but blessing crowns him who is willing to sell.
God rewards generosity. So, don’t loan; give!