What is recourse debt?

Recourse debt refers to loans where the borrower is personally liable for the repayment, meaning that if the borrower defaults on the loan, the lender has the right to pursue the borrower's personal assets beyond just the collateral that secured the loan. This establishes a direct connection between the borrower's financial standing and the repayment of the debt, providing the lender with a significant level of security.

In contrast, non-recourse debt would mean that in the event of default, the lender can only claim the collateral used to secure the loan and cannot pursue any other personal assets of the borrower. This defines the primary difference and highlights why recourse debt is considered a higher risk for the borrower as it provides less protection against personal asset loss. Understanding recourse debt is crucial in financial assessments, as it affects loan terms, interest rates, and the overall financial strategy of individuals or businesses taking on various liabilities.