Recourse Versus Non-Recourse Loans: What’s the Difference?

Staff Writer | October 18th, 2019

It’s not uncommon for people injured or harmed by the actions of another party to bring a lawsuit against the responsible party for payment of damages. While a lawsuit can be necessary and ultimately result in justice, legal cases are also notoriously slow.

Court cases can drag on for lengthy periods of time. Personal injury cases taking years to reach a resolution is not unheard of. Meanwhile, bills accumulate and many plaintiffs don’t have the financial resources to cover them. What is to be done?

A Non-Recourse Loan Can Help

Many people who are waiting for their lawsuit to be resolved may be in a tight squeeze financially. As a result, they may turn to a non-recourse loan, often called a legal loan. A non-recourse loan only has to be paid back if the legal case is successful. If your case isn’t successful, you won’t owe so much as a nickel.

But how can that be? After all, don’t all loans need to be repaid eventually?

We’ll explain why not in a minute, but first, let’s explore what a non-recourse loan is for.

Injuries almost always require medical treatment. In today’s world, medical treatment can be extremely expensive. Doctors, hospitals, pharmacies, and physical therapists won’t wait to be paid. While you may eventually receive compensation for the bills they’ve charged you, in the short term, the injured person is responsible for the cost.

Injuries often mean that you’re unable to work at all, or unable to work as frequently as you did. Meanwhile, medical bills are piling up.

A non-recourse legal loan can help because it gives you money to pay not only medical bills but any expense you have while your lawsuit is pending. Groceries, utilities, rent, and mortgage payments – a legal loan can cover them all.

If your court case goes in your favor, you need to repay the non-recourse loan back at a reasonable interest rate. If it goes in favor of the defendant, you don’t owe a nickel, ever.

Difference Between Two Types of Loan

Here’s why. All loans can be categorized as recourse or non-recourse.

For all loans, of either type, the lender (bank, credit union, or other lender) has a course of action in case the person who owes falls to make payments. This is called a default. They usually require collateral, which is an asset that can be sold in case of a default.

It’s easy to see how this works in the case of a mortgage, which is a loan to buy a house. If the mortgage holders default, the lender can sell the house to recoup the amount of the mortgage.

However, in some cases, the collateral required is not enough to make back the amount of the loan, or there was no collateral. That’s when the recourse or non-recourse category for loans comes into play.

In a recourse loan, the lender has further recourse to recoup the money. They can, for example, garnish wages or require other assets to be sold.

But in a non-recourse loan, the lender has no further recourse. There is no other action they can take if they have not received their loaned money back.

Because legal loans are set up as non-recourse loans, there is no action the lender can take if your legal case is not successful.

Lawstreet Capital can help by providing non-recourse loans to relieve economic stress until your court case is decided.

Non-recourse loans give you a tremendous advantage in settlement negotiations. All too frequently, plaintiffs settle for the first offer because they so desperately need the money. But if you have a legal loan in your pocket, you can wait for higher offers down the line.

At LawStreet Capital, you can be approved in 24 hours and no credit check is ever necessary. Call today to learn more about legal funding and to get your cash advance!