Recourse Loan

DEFINITION of 'Recourse Loan'

A type of loan that allows a lender to seek financial damages if the borrower fails to pay the liability, and if the value of the underlying asset is not enough to cover it. A recourse loan allows the lender to go after the debtor's assets that were not used as loan collateral in case of default.

BREAKING DOWN 'Recourse Loan'

Recourse loans give lenders a higher degree of power because they have fewer limits on what assets lenders can go after for loan repayment. For example, suppose that a homeowner takes out a recourse loan for $500,000 to purchase a home and then goes into foreclosure when the local housing market declines. If the value of the home is now only $400,000 and it was purchased with a recourse loan, the lending institution can target the borrower's other assets in order to make up for the outstanding $100,000.

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