When it comes to financing, there are two main types of loans: recourse and non-recourse. Both involve borrowing money from a lender but the borrower’s legal liability for repayment differs significantly between the two. In this blog post, we will discuss the differences between recourse and non-recourse financing so you can make an informed decision when choosing which type of loan is best for your needs.
Recourse financing is a loan in which the borrower has personal liability for repayment. In other words, if payments are not made according to the terms of the agreement, the lender can go after the borrower’s assets – such as a home, savings account, or investment portfolio – to recoup its losses. This type of loan is usually used by borrowers who have strong credit ratings or a large amount of collateral to put up as security.
Non-recourse financing, on the other hand, carries no personal liability for repayment on behalf of the borrower. If payments are not made according to the terms of the loan agreement, the lender cannot pursue any of the borrower’s assets – the only recourse available is to repossess any collateral (such as a car or real estate) that was provided to secure the loan. This type of loan is typically used by borrowers with less-than-perfect credit ratings, who cannot provide adequate security for a recourse loan.
No matter which type of financing you choose, it’s important to understand the details of the loan agreement and work out a repayment plan that fits within your budget. Doing so will help ensure that payments are made on time and avoid any future complications with creditors.
By understanding the differences between recourse and non-recourse financing, you can make an informed decision about which type of loan will best suit your needs. MAI Capital offers both recourse and non-recourse financing solutions to fit your needs. Contact our team to learn more.