Some lenders will allow a borrower to secure a loan through a non-recourse debt pledge. This entails the lender pledging a form of collateral, i.e. real estate or property, for which the borrower is not personally liable.

Non-recourse debt (loan) can be considered a high-risk loan for lenders. If a borrower defaults, the lender can then seize the collateral.

The legal proceedings of both recourse and the non-recourse loan will be different in each state.

The difference between recourse and non-recourse loans

The Internal Revenue Service differentiates between two categories of loans, recourse and non-recourse loans:

  • Recourse Loan: If a loan has not yet been fully repaid, a lender can collect items for the owed debt even after they have collected the collateral. This form of debt will also allow lenders the right to garnish wages and levy accounts.
  • Non-Recourse Loan: When a borrower defaults, lenders can only collect the agreed-upon collateral. An everyday example of non-recourse debt or loans involves the repayment of home loans. In case a borrower defaults, the bank is allowed to foreclose the home but further legal steps can be taken to collect money owed on the loan.

Why use a non-recourse loan/debt?

Borrowers will undergo a non-recourse loan or debt to help secure their finances. This form of debt offers no personal liability to any of their assets, or to which they have offered as collateral.

This enables borrowers to have better security over their wages, and personal liability. As no legal action can be taken by the lender if a borrower defaults. Lenders do have the right to obtain the agreed collateral such as property or real estate to repay the loan.

How helpful is this content?

Share this article:

Join a community of 350,000+ members

  • Gain access to unique offerings previously reserved for the ultra-wealthy

  • Customize your portfolio for income, growth, or a balance of both

  • Get started today and earn an average IRR of over 8%

What investors are saying about Yieldstreet

Apr 2022

The due diligence, risk management, and product education materials are thorough, excellent, and easy to use and understand.

Manoj J
Member since 2019
Apr 2022

Excellent and unique selections that I can't find elsewhere.

Jonathan S
Member since 2019
Apr 2022

The platform delivers in a very concise manner. Easy to get a clear understanding at a glance from the web or mobile app.

Tim S
Member since 2021
The testimonials presented on this page have been provided by actual investors in Yieldstreet funds without compensation. Yieldstreet has selected the testimonials, and certain testimonials have been edited to remove personally identifiable information and for brevity. Testimonials were not selected based on objective or random criteria, but rather were selected based on Yieldstreet's understanding of its relationship with the providers of the testimonials. The uncompensated testimonials presented here may not be representative of other investors' experiences, and there can be no guarantee that investors will experience future performance or success consistent with the testimonials presented.

The Yield

Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.

Since inception, over $2.5B has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.