Refinancing a Recourse Loan Without a Co-Signer

A recourse loan differs from a non recourse loan in that the lender has the power to go after a borrower in the case of a loan default. This is even after the loan has been collateralized and that collateral has been seized by the lender. This makes a recourse loan more risky than a non recourse loan because of the fact that if the borrower lacks sufficient additional assets or collateral, the lender stands to lose the amount that they are unable to recover.

Refinancing with a Non Recourse Loan

A borrower with a recourse loan may seek to refinance the loan with a non-recourse or other type of secured loan. This will eliminate the lender’s ability to seize additional assets of the borrower in the event of a default. These loans can be obtained without the use of a co-signer or loan guarantor. This is based on the lenders willingness to rewrite the loan and change its terms from a recourse to a non-recourse loan.

Timing a Recourse Loan Refinance

A borrower who is considering a refinancing of a recourse loan should do so when there credit and payment history is improving. Non recourse loans tend to be extended to individual borrowers with a low or bad credit profile. The use of collateral secures a portion of the loan but limits the lender to only the collateral in the event of a default. As a result, a nonrecourse loan will result in a higher interest rate and lower loan-to-value ratio in order to protect the lender. This consideration needs to be accounted for by a borrower who is looking to change from a recourse to a non recourse loan.

About Secured Debt

Secured debt allows borrowers with bad credit to obtain a loan without the need for an additional signer. Co-signers help borrowers obtain loans but potentially place a strain on a relationship in the event that the loan is not paid back in a timely manner. In the case of a recourse loan, a lender will need to feel assured that the borrower can continue to meet their debt obligation in a timely manner before considering whether or not it is necessary to include a co-signer or guarantor.

Monitor Credit

Taking steps to raise a borrower’s credit score helps reduce the likelihood of needing a co-signer. This includes monitoring credit reports, which are provided for free on an annual basis to any borrower through a request of the 3 major credit reporting bureaus and eliminating false and erroneous information that appears on a credit file. This process should be part of the regular financial tune-up that a borrower engages in on annual basis and can be made to coincide with their tax filing.