Good mornin’, wealth builders!
I have an absolute DOOZY of a topic for discussion today. This is based on a situation someone I know is dealing with currently…
Would you cosign a loan for your best friend so she can freeze her eggs?
Now before you say “Hell no!” like I yelled immediately when I heard the question, listen to the full story first…
OK, here is the situation. Picture this…
Your best friend calls you up one day asking for your help… She is 41 years old, super smart, has a great job, but hasn’t been a great money saver in life.
More than anything in the world, your friend wants to have a baby. But she hasn’t met the right partner in life yet and is worried that her chances of getting pregnant naturally are shrinking as she gets older.
So, she wants to have elective surgery to freeze her eggs, which costs about $30k.
As of now, she has about $10k from savings and from her parents chipping in money, but she needs to borrow the additional $20k to have the surgery and whatnot paid for.
There are a few loan options available for the $20k… The first is just a personal loan from a bank, with interest rates around 7+%.
But, even better, there’s a non-profit organization she found that will loan her $20k *interest free* on a 4-year term. This specific nonprofit was set up to help people with these types of charitable situations, so the $20k would be interest free and repayments would be $416 per month for 48 months.
There is one problem though… This nonprofit does not take collateral for their loans. They REQUIRE someone else to cosign for every loan. That’s the only way your friend can get the money interest free.
So, your friend is asking YOU to cosign for the $20k loan – so it will be interest free.
Other relevant information
- The reason she can’t have her parents cosign is because they don’t have a strong relationship, and she was brought up to never discuss money with family.
- If she goes through with surgery, there is still no guarantee that it will result in a successful pregnancy later in life. Not to mention meeting the right partner and beginning a family.
- Freezing eggs not only has an upfront cost for surgery, there’s also an ongoing fee for safe storage (about $1000 per year).
- Her car is paid off, and she has no other personal debts. From what I understand about her annual income/expenses, $500 per month payments is completely doable.
- Did I mention this is your BEST friend? Like, as in, you grew up with her together and she means more to you than anyone else in the world. Deep down inside, you trust her.
Soooo… Given all this information, would you cosign for the $20k loan?
I look forward to hearing all your opinions and whatnot in the comments below. Here is what is going through my head…
Reasons to not cosign a loan for your best friend
My default answer to cosigning a loan would be NO! Here are a few reasons why…
- She might default! Obviously, if my friend doesn’t make payments, I’d be on the hook for paying the $20k! (or monthly payments of $416 for however long the loan has left). The fact that she’s over 40 and can’t scratch together $30k concerns me.
- Potentially ruin the friendship: Whether it works out or not, things can get weird cosigning or lending money to friends.
- Future expenses: Let’s say 2 years from now she actually wants to have the baby… If she can’t afford $20k now, how is she going to afford future surgeries, baby delivery, and upfront child costs later? A favor now could be a slippery slope for giving more money later.
- It’s just outside of my comfort zone. I’ve done well in life by following a specific set of money principles. Cosigning loans is NOT one of them and is not great financial advice.
Reasons to say YES
Before shutting my friend down completely, let’s look at the opposite side of things…
- The gift of a baby! Maybe my emotions are running high because my wife and I are exploring the idea of children ourselves right now… Personally, I would love nothing more than to help a friend have a kid, in whatever manner they feel is best for them. Family in life is more important than money.
- I’m financially stable: Although $20k is a shitload of money, losing it wouldn’t break me. What’s the point of accumulating all this money if I can’t use it to help family and friends?
- It might cost me nothing. If my friend makes all payments on time, this situation would cost me zero.
- If I say no, she’ll do it somehow anyway: She’s probably going to get a loan regardless, so I want her to get the interest free one as it’ll be cheaper for her.
Meet-in-the middle options
Now that I’m thinking about this more, here are a few other out of the box ideas…
One idea could be to ask my friend for collateral somehow. I could cosign the loan, but if she could give me something of value then I have some security. For example, she could write a promissory note for her car. Not sure how that would hold up if things got ugly, but just the fact that I have some leverage might incentivize her more to make all the payments.
Another idea would be to tell my friend to get a $20k personal loan from the bank… But, as a gift, I could cover all of the interest payments. If she was charged 7% over a 4 year term, interest would total about $3k. She would end up with a $20k “interest free” loan and I would pay $3k to help a friend. That’s not a bad idea. I’d give $3k to my best friend.
Maybe I could encourage her to wait 1-2 years and try helping her save up the money in cash? (She’d be 43 at that point, and I know age can be an issue).
All in all, I’m not 100% opposed to the idea. But I still think at this stage in my life, I would still probably say no. As sad as it is… I just wouldn’t feel comfortable.
What about you? Tell me what you’d do in this situation…