Without Recourse: Overview, Example, vs. With Recourse

By Lyle Daly – Updated Apr 3, 2025 at 12:42 PM EST

Key Points

Nonrecourse loans limit lender recovery to collateral, safeguarding borrower's other assets if they default.
Loans without recourse often have higher interest rates to offset the increased risk to lenders.
Availability of nonrecourse loans varies by region and requires higher credit scores and larger down payments.

When a lender issues a loan, that debt can be either with or without recourse. The type of debt determines the lender's options if the borrower defaults. Lenders have limited options with nonrecourse debt, so these loans present a much greater risk.

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Computer keyboard with a magnifying glass hovering over a key that says loan. — Image source: Getty Images.

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Loans with recourse allow the lender to go after other borrower assets. The lender could sue the debtor and potentially get a court order to garnish wages, go after bank accounts, or repossess property to pay off the debt. Lenders don't always do this, even if the debt is with recourse -- some will write it off to avoid the expense of suing the debtor -- but they have the option.

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Loans without recourse tend to have higher interest rates than loans with recourse. The lender charges more to balance out the greater risk it's taking. Assuming you're going to be paying off your debt either way, a loan with recourse is most likely the better option because it will save you money on interest.

In addition to higher interest rates, nonrecourse loans come with stricter approval standards. While you could qualify for a loan with recourse if your credit isn't the best, it usually takes a high credit score to get a nonrecourse loan. You may also need to make a larger down payment if you want to get a mortgage or an auto loan without recourse.

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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