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Posted by on Apr 11, 2014 in Loans, Tips |

The Difference Between Recourse And Non Recourse Loans

The Difference Between Recourse And Non Recourse Loans

If you are an entrepreneur who is just starting out in your business or if you have had a business that has been up and running for many years it is important to know exactly what a recourse loan and a non recourse loan is.  As a business owner you should know the definition of both and be sure that you understand them.  Without this knowledge you can find that it can be a costly mistake. 

Definitions

If you look up the meaning of each of these words in the dictionary you will find that the definition of recourse loans as “the right to exact payment from a party secondarily liable, where the first party has failed to pay”.

The definition of a non-recourse loan is listed in the dictionary as “being or based on an agreement in which the lender has no right of recourse to the borrower’s assets beyond stated limits”.

What these definitions mean to the everyday person is that a recourse loan will give the lender a promise or a guarantee that the money will be paid back to them.  It gives the lender the right to use any means necessary to receive the payment from the borrower or co signor who signed the loan agreement or contract.

The non-recourse loan will work in favor of the borrower and not the lender.  As a borrower if you are no longer able to meet you the payments that were agreed upon in the loan agreement and you can show proof of this you will no longer have to repay the loan.

Traditional Financing

If you are out to obtain a bank loan or you currently have a bank loan you will find that you more than likely have a recourse loan.  Most traditional lenders will use the art of recourse financing in lieu of non-recourse.  Of course whether you are a bank lender or a private lender the choice will be yours to make as to what kinds of financing you wish to use.

Types Of Loans

As a borrower you will find that both recourse and non-recourse loans will all be different.  They will depend on the type of loan your will need and where the loans for people with bad credit will come from.  If you have collateral that you wish to pledge on the loan you will find that this is also an option especially if you have real estate, automobiles, machinery or equipment that you wish to use as collateral.

Real Estate Market

A popular question is regarding the type of loan used in the real estate market.  You will find that when working in real estate with a private lender a non-recourse loan will be more widely used although the traditional lending is also still an option.  The world of lending in the real estate market is always changing.  You will need to be sure what type of loan agreement you sign.

Conclusion

As with any loan you should read the loan documents closely.  Be sure to have all documents available when you apply for your loan and it is important to make your monthly payments no matter if your loan is a recourse loan or a non-recourse loan.

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