What’s the Difference Between Non-Recourse Loans and Recourse Loans?

When taking out a loan, or receiving any funding that will result in debt, it is crucial to know whether you’re getting a recourse loan or a non-recourse loan. Those are the two categories of debt into which the Internal Revenue Service divides all loans. Though the names sound similar, the difference is that non-recourse loans put restrictions on how the lender can pursue repayment. In this way, they protect the borrower from predatory lending.

High Rise Financial provides non-recourse pre-settlement legal funding to personal injury claimants with a pending lawsuit. Since these funds are classified as non-recourse, there is no risk to the borrower. If you lose your case, you don’t owe us anything! In this post, we’ll discuss the main difference between non-recourse and recourse loans, as well as how the pre-settlement legal funding process works.

If you have a lawsuit in the works, and need extra money to deal with your current financial stressors, fill out the form on our Apply Now page or call our office at (877) 823-4377.

What are Recourse Loans?

If your loan is classified as recourse, the lender has much more leeway for pursuing repayment. That is because you are held personally liable for the entirety of the debt associated with the loan. If your loan is secured by collateral, the lender can take the collateral and continue to pursue payment from you if the collateral does not cover the full debt you owe. Here’s a simple example using a recourse home loan.

• You take out a recourse home loan from your bank.
• The house is used as collateral for this loan, which is typical for home loans.
• Eventually, you end up defaulting on the loan.
• The bank repossesses your house, but your home’s value does not cover the full amount you owe.
• The bank can take money out of your paycheck or continue to hound you for payment until it is entirely repaid.

Recourse loans represent the worst form of borrowing from a borrower’s perspective since they do not protect borrowers. Many lawsuit lenders use these kinds of predatory loans, coupled with high compound interest rates, to trap borrowers into paying two to three times what they owe, even if they lose their lawsuit. That’s why the Center for Public Integrity warns borrowers about lawsuit loans.

To apply for free, call (877) 735-0016

To apply for free, call (877) 735-0016

What are Non-Recourse Loans?

On the other hand, non-recourse loans protect the borrower by restricting how the lender can pursue repayment. With this kind of debt, the borrower is NOT held personally liable. This means that the most the lender can take is the collateral associated with the loan, even if the collateral does not cover what is owed.

Using the above example of a home loan or mortgage loan, if you defaulted on your loan, the most the bank could do is take your house. While that is a big deal and is unfortunate, the bank would be unable to garnish your wages or hound you for more payment, even if your home’s value did not match what you still owed on the loan. In this way, the negative impact of defaulting is limited.

Key Differences Between Non-Recourse and Recourse Lawsuit Loans

When facing financial distress and in need of legal funding, getting the right one is crucial to avoid potential liability. Also, this will help ensure that you do not worsen your financial situation. Here are some of the key differences between nonrecourse loans and recourse loans.

1. Repayment Obligation

A recourse loan requires repayment regardless of the lawsuit’s outcome. If a plaintiff loses their case, they are still responsible for paying back the loan, often with high interest rates.

On the other hand, a non-recourse loan offers financial protection because repayment only happens if the plaintiff wins the case. If no settlement is awarded, the borrower owes nothing. This makes it a risk-free funding option.

2. Impact on Bank Accounts and Personal Finances

Since recourse debt is legally enforceable, lenders can pursue repayment through bank accounts, wages, and other assets. Plaintiffs could face financial hardship if their lawsuit doesn’t result in compensation.

With a non-recourse loan, the lender cannot collect additional money beyond the agreed portion of the settlement funds. This protects plaintiffs from financial strain or legal action if their case is unsuccessful.

3. Loan Collateral Requirements

Most recourse loans require loan collateral, meaning plaintiffs may need to offer personal assets as security. If they cannot repay the recourse debt or loan agreement, the lender has the right to seize collateral, including property or savings.

Conversely, a non-recourse lawsuit loan is secured only by the expected settlement. The plaintiff’s credit score, personal assets, and bank loans remain unaffected. Since there is no non-recourse debt, it is a safer option for legal funding.

4. Interest Rates and Loan Terms

Since lenders take on higher risks with non-recourse loans, interest rates may be higher compared to recourse debt. However, because repayment is dependent on settlement success, these loans offer better financial protection.

A recourse loan, while sometimes offering lower initial interest rates, comes with greater financial responsibility, as the borrower must repay regardless of the lawsuit’s outcome.

5. Debt Collection and Loan Default Risks

If a plaintiff defaults on a recourse loan, lenders can pursue legal action to recover losses. Some providers may garnish wages or freeze bank accounts to force repayment to cover the recourse debt.

A non-recourse debt, however, means no repayment obligation if the case does not settle. There are no collection efforts. Hence, this protects plaintiffs from financial instability.

6. Market Availability and Legal Industry Trends

In the lawsuit funding industry, most reputable lenders offer non-recourse loans at a fair market value based on market conditions to protect plaintiffs. However, some providers still push recourse loans, which may leave borrowers in financial trouble after a case loss.

Plaintiffs should be cautious when reviewing loan agreements, ensuring their legal funding company provides non-recourse lawsuit loans instead of recourse options.

Why Non-Recourse Loans Are the Best Choice for Legal Funding

Many plaintiffs turn to non-recourse lawsuit loans because they offer financial flexibility without risk. Unlike traditional credit cards, bank loans, or auto loans, these funding agreements are linked directly to settlement outcomes.

For those struggling with medical bills, court costs, and litigation expenses, non-recourse commercial loans ensure plaintiffs get the support they need without worrying about repayment unless they win. In addition, the loan amounts are often reasonable and can cover your essential living expenses.

 Protecting Your Legal Claim with Non-Recourse Loans

When seeking lawsuit funding, plaintiffs must be aware of their rights. Certain lenders may attempt to include bad boy carve-outs in loan documents, creating situations where a non-recourse loan suddenly becomes recourse debt.

By working with licensed pre-settlement funding companies, plaintiffs can ensure they receive true non-recourse funding that does not put personal assets at risk. 

Reviewing Loan Documents Before Signing 

Whether a loan is recourse or non-recourse, borrowers must carefully review their loan agreement and associated loan documents to understand the risks. Certain agreements may include hidden clauses allowing lenders to pursue additional assets in case of default.

Debt Service Coverage Ratio and Loan Approval 

Lenders assess the debt service coverage ratio (DSCR) to determine if a borrower can handle loan repayments. Borrowers with a strong DSCR may have better chances of securing non-recourse commercial loans, whereas those with lower ratios may be offered recourse debt instead.

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High Rise Financial’s Legal Funding

We provide exclusively non-recourse funding to clients in need, but we don’t do loans per se. Instead, our financial assistance is classified as pre-settlement legal funding. The essential factors to remember are:

• You don’t owe us a dime if you lose your lawsuit.
• You repay the funds directly from your settlement or jury award, meaningthere are no monthly payments.
• There is no risk to you.
• The application process is FREE!

Qualifying for Non-Recourse Pre-Settlement Legal Funding

High Rise Financial protects the borrower with our non-recourse legal funding, but we also need to protect our underwriters. That’s why we have some criteria for qualification. If you consider applying for pre-settlement legal funding, make sure you check off the following items in our list of qualifications.

You Have a Personal Injury Case

First, you need to have a valid personal injury claim on file. If you haven’t yet filed your claim in court, you won’t be eligible for pre-settlement legal funding. Cases we’ve helped fund in the past include:

• Car accidents
• Bike and pedestrian collisions
• Medical device injuries
• Product liability
• Nursing home negligence
• Medical malpractice

You Are Represented By an Attorney

We also require our clients to be represented by a lawyer or law firm. This helps ensure that your case has a high chance of resolving favorably. Plus, claimants with attorneys on their side usually end up with much larger compensation packages, even after attorneys’ fees are taken out. It’s a win-win!

Get Your Non-Recourse Legal Funding Today

High Rise Financial’s process is quick and straightforward. After you apply, our underwriters examine the validity of your claim, the extent of your damages, and the total compensation you expect to receive. Depending on the factors in your case, you can have up to $250,000 in your bank account within 24 hours.

To get started, simply fill out the form on our Apply Now page. If you’d like to speak with a member of our team about the details of the process, just call us today at (877) 823-4377.

Call or text (877) 735-0016 or fill out our form to apply today for free.

Call or text (877) 735-0016 or fill out our form to apply today for free.