Comparing a Recourse Loan and a Non-Recourse Loan

A recourse loan and a non-recourse loan are the two basic types of loans. Both kinds are used to secure a number of different items and property. Both recourse and non-recourse loans present unique challenges and opportunities for the borrower and the creditor. Here are a few things that you need to know about recourse and non-recourse loans. 

Recourse Loans

Recourse loans are loans that allow the creditor to come after the borrower in the event of default. If you have a recourse loan with the bank and default on your loan, they can take action to collect the amount from you. Your loan is not held by any form of collateral. If you owe the bank money, they can take several actions to get it back from you. They can go to court and get a judgement against you, have your property seized, or garnish your wages. There are a lot of different ways that lenders have at their disposal to get their money back from you.

The advantage of this type of loan is that it often has lower interest than a non-recourse loan. Therefore, you can save money on your monthly loan payment, as well as over the life of the loan. In addition to that, you can also get an unsecured loan. This means that you do not have to come up with any form of collateral for the loan. This will allow you easier access to money without needing to put anything up for it. Recourse loans usually require a good credit score and proof that you will be able to repay the loan. 

Non-Recourse Loans

Non-recourse loans are a completely different type of process. When you have a non-recourse loan, this means that you can default on the loan and they will not be able to come after you personally. Non-recourse loans are usually held with some sort of collateral. Once the loan goes into default, the bank can only go after that particular asset. They can do whatever they want with it to get their investment back. However, they can not ask you personally for the money. 

These types of loans are very common with mortgages. Most of the time, when you have a mortgage, you are the owner of a non-recourse loan. If you can not make your house payments, they will send the mortgage into default. They will then foreclose on the house and sell it at auction or through a number of other outlets. The money that they raise from the sale of the asset is all that they will receive from the mortgage and the house. They can not come after your assets or ask you to pay anything in addition to giving them back the possession of the house. 


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