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 Security

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

The security, which is normally property because of its value, allows a lender to keep the security, if the borrower fails 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 security, sell it, and benefit from the proceeds to pay off the debt. Basically, you lose something of great value for lesser money if you go south on the debt.

Less Personal Liability

Borrowers 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 lender takes the greater risk, which is not necessarily a positive, but it is a pro.

You Don't Need a High Credit Score

If you have a low credit score, then obtaining a non-recourse loan may a better option for you to get access to capital. Banks view these loans as high-risk loans, mainly because liability falls on them.

If a borrower defaults on this type of loan, the borrower does not have to worry about their credit score being negatively affected. Contact us today for more information on non-recourse loans.