Recourse

In finance, recourse is the ability of a lender to pursue other sources of repayment in the event of a default on a loan. This can include the ability to seize collateral, sue the borrower, or both.

Recourse is important because it gives lenders a way to protect themselves from losses in the event of a default. Without recourse, lenders would be more likely to lend to riskier borrowers, which would increase the cost of credit for everyone.

There are two types of recourse: general recourse and limited recourse. General recourse means that the lender can pursue any assets of the borrower, including personal assets, in the event of a default. Limited recourse means that the lender can only pursue assets that are specifically pledged as collateral for the loan.

The type of recourse that is available on a loan will depend on the terms of the loan agreement. Lenders typically offer limited recourse loans to borrowers with good credit histories, while borrowers with poor credit histories may be required to take out a loan with general recourse.

Recourse can also be used to describe the ability of a guarantor to be called upon to repay a loan in the event of a default by the primary borrower. In this case, the guarantor is said to have recourse against the primary borrower.

Recourse is an important concept in finance because it helps to protect lenders from losses and ensures that borrowers are held accountable for their debts.