The Pros and Cons of a Non-Recourse Loan

Whether you’re in a bind, consolidating, paying off large debts, or trying to add an addition to your home, you may have to borrow money.

When borrowing funds, it’s important to understand what type of loan to take out. A Non-recourse loan–a type of loan secured by collateral–is available to assist with all of your borrowing needs.

Taking out a loan is not a light decision, as it comes with significant stakes–benefits and downfalls.

Let’s take a look at some of the pros and cons of a non-recourse loan.

A Non-Recourse Loan Requires Collateral

In order to secure this type of loan, you must put up something of worth. That something of worth is called collateral.

Collateral, which is normally property because of its value, allows a lender to release a set amount of money to someone as recoup if they fail to repay the loan.

That’s a pitfall of this type of loan.

If you fail to pay the debt you owe, a lender can take the collateral, sell it, and benefit from the proceeds of it to pay off the debt. Basically, you lose something of great value for lesser money if you go south on the debt.

And if the value of the collateral fails to meet the debt dollar for dollar, you’re still responsible for the unpaid balance, and a lender could pursue further collection action against you.

Lesser Liability

Debtors should always choose to go the responsible route and pay their debts. However, life happens. And financial mishaps happen, forcing people to make hard decisions regarding debt.

Fortunately, these types of loans don’t come with personal liability. The bank takes the greater risk, which is not necessarily a positive, but it is a pro.

Debtors can recover from this type of debt faux pas. There are credit repair options available to debtors looking to rebuild their credit.

You Need a Higher Credit Score

If you have a low credit score, you may have trouble obtaining a non-recourse loan. Banks view these loans as high-risk loans, mainly because liability falls on them.

Targeting your credit score is the only recourse a lender has with this type of loan if you fail to pay the debt.

Depending on the financial situation of the debtor, this loan could sit on a debtor’s credit report for years before the debt is paid–if it’s ever paid. For these reasons, lenders normally require debtors have higher credit scores.

If a debtor defaults on this type of loan, the borrower does not have to worry about the repayment liability. Learn more about this program

Contact us today for more information on non-recourse loans.