Recourse and non-recourse loans allow lenders to lay claim to assets if borrowers default on their obligations and fail to repay their debts. Lenders are allowed to take possession of any assets used as collateral to secure these loans. Many loans are taken out with one or more assets of a certain value that the lender can take if the borrower does not fulfill their obligation as outlined in the loan agreement.

The primary difference between the two is that a recourse loan favors the lender, while a non-recourse loan benefits the borrower. So the distinction between recourse loans and non-recourse loans comes into play if money is still owed on the debt after the collateral is sold. Recourse loans allow lenders to go after other assets owned by the borrower if there’s still a balance remaining after the collateral is collected. Lenders of non-recourse loans, on the other hand, are prohibited from going after a borrower’s other assets even if there’s an outstanding balance after the collateral is sold.