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Simple English definitions for legal terms
nonrecourse loan
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A quick definition of nonrecourse loan:
A nonrecourse loan is a type of loan where the lender can only take the collateral (like a house or car) if the borrower can't pay back the loan. The lender can't go after the borrower's personal assets. It's like borrowing a toy from a friend, but if you can't give it back, they can only take the toy and not anything else you own.A more thorough explanation:
A nonrecourse loan is a type of secured loan where the lender can only seize the collateral if the borrower defaults on the loan. The lender cannot go after the borrower's personal assets to recover the loan amount.
For example, if a borrower takes out a nonrecourse loan to buy a car and defaults on the loan, the lender can only repossess the car and sell it to recover the loan amount. The lender cannot sue the borrower for any remaining balance if the sale of the car does not cover the full loan amount.
Another example is a nonrecourse mortgage loan. If the borrower defaults on the loan, the lender can only foreclose on the property and sell it to recover the loan amount. The lender cannot sue the borrower for any remaining balance if the sale of the property does not cover the full loan amount.
Nonrecourse loans are often used in real estate and commercial lending, where the collateral is the property or the business itself. They are less risky for borrowers because they limit the lender's ability to go after their personal assets.