It may come in many names, like co-maker, co-borrower, guarantor, or others, but it's commonly required for big-ticket loans to have someone who will guarantee the loan for you.
Because of this requirement, a friend or relative sometimes approaches you and asks you to become their co-maker. However, before agreeing, you must know the basic facts and responsibilities of becoming a co-borrower.
Because if you agree to be a co-maker and the original loan-taker defaults on their loan, you, as the co-maker/guarantor, will have to pay for it.
Can you see the danger of becoming a co-maker for a loan? Let's proceed.
Lending companies often require a co-maker and will be contractually obligated to pay for another person's loan if the principal borrower fails to do so.
Essentially, a co-maker's primary responsibility is to assume the liability from the original debtor. So if worse comes to worse, a co-maker will have to pay for another person's loan that they never enjoyed.
So, in case the original borrower defaults on the loan or stops paying, the co-maker will be held liable for the amount borrowed, including the interest and other charges it requires.
Dangers of Being a Co-Maker
Being a co-maker is not "safe," as what the prospective borrowers asking you to be their co-makers will say. In fact, a co-maker is legally liable to pay for the loan and can even be sued along with the primary borrower.
I know some people who once agreed to become a co-maker for their friends and acquaintances. At first, they were unbothered as the principal borrowers faithfully paid their debts.
Then, one day, the payments stopped, and their "friends" disappeared. After that incident, the loaning companies started contacting them, asking and threatening them to pay for the loan they never enjoyed.
Now, decades later and tens of thousands of pesos paid, there is still bitterness and resentment about what happened. Since it is a break of trust, their relationship was never repaired. Sadly, can you blame them?
When some friends and workmates asked me to be their co-maker, I would always say no. I only agreed once when I was just starting my career (and this is with much opposition).
The reason for this is simple. "Kung ako nga mismo, hindi umuutang, bakit ako ang magbabayad ng hindi ko utang (kung magkataon)?"
Whenever I deny someone of becoming a co-maker, they often pout or become angry. But that's better than regretting the decision in the future.
Benefits of Being a Co-Maker
If there is a great danger of becoming a co-maker, then why do people still agree to it? My honest answer is, 'I don't know." The other explanation is that they might be afraid to damage their relationship or are just saving face to avoid embarrassment.
The benefits of becoming a co-maker are mostly relational, as you're maintaining your relationship and helping a friend or relative. However, that relationship is also constantly in danger if they decide to stop paying and you get in trouble.
The other benefit is transactional. Simply, I will be your co-maker as long as you will be my co-maker if I ever need one. This is something I also saw in some people.
Wisdom From the Bible
The Bible is not only a Spiritual book. It is also a practical book and talks a lot about personal finance. Let's take a look at what the book of Proverbs says about co-maker and guaranteeing for another person's debt.
Don’t agree to guarantee another person’s debt or put up security for someone else. If you can’t pay it, even your bed will be snatched from under you.Proverbs 22:26-27
The proverbs say not to agree to guarantee another person's debt because if the original debtor can't pay or refuses to pay, you'll be the next in line who the debt collectors will chase.
If you can afford something, you don't need a co-maker.
Looking at the Kurot Principle in spending, it says that whenever you're spending on something, it should only be a pinch or a small amount of your funds. Never the bulk (dakot), and avoid debt (utang).
So, if someone asks you to be their co-maker, you can simply say no. And if they keep pushing, merely tell them that they can't afford it yet, and just work on how to build a good credit standing and increase their income.
The Importance of Saying No
Have you heard small children saying "no" with authority? When these kids say no, they mean it. However, that's different from what most adults understand. Remember, "no" is a complete sentence, and as adults, we should respect that.
Though saying 'no' may sometimes cause rifts between friends and relatives, I believe it's still better to set a boundary from what you deem wise and protect yourself and your family.
Becoming a co-maker is something we should take seriously as there is always a danger for original borrowers to default and, worse, to disappear, leaving us paying for the amount we never enjoyed.