The Risks of a Recourse Loan
A recourse loan presents a significant level of risk to a borrower. If the borrower is unable to pay back the debt obligation, the lender can attach a judgment and seize assets. In addition to the collateral that was used to secure the loan, a lender has the ability to go after any additional holdings of the borrower in order to satisfy the outstanding debt. In addition, lenders can take out a judgment and garnish wages. This risk is not present in a non recourse loan because the risk is limited to the borrower’s collateral.
Reason for Recourse Loans
Recourse loans may be good for certain borrowers who do not wish to pledge a large collateral amount such as a home, car or other large asset and seek a low interest rate. Recourse loans provide better rates.
State’s Determination on Recourse Loans
States determine whether or not a recourse loan is in the best interest of a borrower or lender. Some states permit the use of recourse loans by lenders while others in the name of protecting borrowers do not.
Student Loans
- 3 Factors that Contribute to Fluctuating Interest Rates on Student Loans
- What are the Consequences of Defaulting on a Federal Student Loan?
- What Happens when You Default on a Private Student Loan?
- Federal vs. Private: Comparing Student Loan Interest Rate
- Can You Get a Private Student Loan with No Cosigner?