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Recourse Loan

Candlefocus Editor
A recourse loan is a type of loan agreement in which the lender has the right to take back control of the borrower’s collateral if they fail to make the agreed payments. It is a common form of loan financing especially with hard or private money lenders. The collateral that may be seized by the lender can include bank accounts, real estate holdings, or sources of income. Additionally, the recourse loan contract outlines exactly which assets are subject to the lender’s claim in the event of default.

Recourse loans are advantageous for lenders because they provide addedsecurity in the event of default, giving them the opportunity to recoup their losses from the borrower, who is liable for the repayment of the loan. Furthermore, a recourse loan provides the lender with an incentive to carry out appropriate due diligence—for example, making sure the borrower’s credit score checks out before approving the loan.

For borrowers, the drawback of a recourse loan is that even if all the agreed payments are made, should the borrower default on future obligations on the loan, the lender can still pursue the collateral. This risk may deter some potential borrowers, and as such, offshore investors may require recourse loans as opposed to non-recourse loans which offer more favorable terms.

All in all, a recourse loan provides a lender with a certain degree of security, while still allowing borrowers to benefit from certain advantages such as faster processing times and lower interest rates. Therefore, it is an increasingly popular type of loan among both borrowers and lenders and is now commonly available for a variety of loan purposes.

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