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Recourse vs. Non-Recourse Loan: What’s the Difference

In financial terms, the difference between recourse and non-recourse loans lies in the borrower’s liability. A recourse loan makes the borrower personally responsible, allowing lenders to collect owed amounts even after seizing collateral. On the contrary, non-recourse loans do not hold the borrower personally liable; the lender’s recourse is limited to the collateral itself.

At Injury Wallet, we know that it is complex trying to determine the right loan for you.

We are here to help you appreciate the differences and find the lowest lawsuit loan rate possible.

Keep in mind that pre-settlement funding can be highly beneficial. These loans allow your attorney more time to advocate for compensation.

We can help you with lawsuit loans related to auto accidents, wrongful death, medical malpractice, and more. Read on for more information on recourse vs. non-recourse loans.

Recourse vs. Non-Recourse Loans[hide]

What Is Recourse Financing?

The main difference between recourse and non-recourse loans is the lender’s right to recover the value of the loan if the borrower defaults.

Recourse debt holds the borrower personally liable for the repayment of the loan. This means that if the borrower defaults on the loan, the lender can pursue not only the collateral (if any) but also the borrower’s other assets and income to satisfy the debt.
Lenders have the legal right to go after the borrower’s personal assets to recover the outstanding debt.

If the borrower does not have enough assets to cover the loan, the lender has the right to garnish their wages

Because the lender has more options for recovery, recourse loans typically have a lower interest rate than non-recourse loans.

What Are Some Kinds of Recourse Loans?

An individual may have one or more types of recourse loans. Note that the borrower is personally liable when it comes to recourse debt.

A few typical kinds of recourse loans are the following:

  • Credit cards,
  • Automobile loans, and
  • Personal loans.

Whether a mortgage is a recourse loan will depend on the state. Home mortgages are considered recourse loans in all but 12 states.

Short-term real estate loans are also a common type of recourse loan.

What Is Non-Recourse Financing?

Nonrecourse debt, on the other hand, limits the lender’s ability to collect beyond the collateral. In the event of default, the lender can only seize the collateral specified in the loan agreement. The borrower is not personally liable for the debt, and their other assets are generally protected from collection efforts by the lender.

So in the case of pre-settlement funding, the lender can only be repaid from the proceeds of your lawsuit.

It does not matter whether the value of the collateral covers all debt owed.

Non-recourse loans can have higher interest rates than recourse loans because of the risk to the lender.

However, the borrower is not personally liable in regard to non-recourse debt. And the borrower does not risk their other assets when taking out a non-recourse loan.

What Is an Example of a Non-Recourse Loan?

A lawsuit loan a common type of non-recourse loan. By taking out this type of loan, you are borrowing from your future settlement. 

A non-recourse pre-settlement loan can aid you in paying the expenses you incur after suffering an injury.

This way, you can take all the time they need to recover the full compensation you deserve rather than settling for a low-ball offer from the insurance company just to pay your bills. 

When you take out a lawsuit loan, you will pay it back from the proceeds of your settlement or jury award. And if you lose your case, you have no obligation to pay back the loan at all.

Contact Injury Wallet Today for Expert Guidance!

Before taking out a loan, ensure that you understand the differences between recourse and non-recourse loans.

When you are ready, Injury Wallet can help you to find the lowest rate on your lawsuit loan.

If you are not sure where to go to find the best lawsuit loan companies, we are ready to assist you. 

Fill out our short questionnaire today. It takes only a few minutes, and we will find the best interest rate possible for you.

Allow us to take care of finding the right loan company so that you can focus on your recovery.

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