Are Your Loans Recourse or Non-recourse, Know the Difference

[Roger Mace]

Recourse and non-recourse loans are two types of financing agreements that differ primarily in the lender's ability to seek repayment beyond the collateral.

Recourse Loan: In a recourse loan, the borrower is personally liable for the debt. If the borrower defaults, the lender can pursue not only the collateral but also the borrower's other assets and income to recover the outstanding amount. This type of loan typically has lower interest rates since it poses less risk to the lender.

Non-Recourse Loans: Conversely, non-recourse loans limit the lender's ability to collect from the borrower beyond the collateral pledged for the loan. If the borrower defaults, the lender can only seize the collateral and cannot pursue further assets. This type of loan is generally considered riskier for lenders, often resulting in higher interest rates.

In summary, the key difference lies in the borrower's liability and the lender's recourse options in the event of default.