As you research pre-settlement funding, sometimes called a lawsuit loan, you’ll likely come across the term nonrecourse loan. Many people searching for “What is a nonrecourse loan?” want to know how it works, how it differs from other types of financing, and what it means for a pending personal injury case. Understanding the meaning of a nonrecourse loan can help you feel more confident as you compare your options.
Pre-settlement funding is considered a nonrecourse advance or loan because you don’t have to repay it if you don’t win your case. That’s why you may see lawsuit loans referred to as “risk-free.”
Keep reading to learn more about the definition of nonrecourse loans, how they compare to recourse loans, and how the term applies to pre-settlement funding.
Ready to obtain funding now? Submit a request for a nonrecourse loan today.
Key Takeaways
- If you have a nonrecourse loan, your lender can only collect what you put up as collateral for the debt.[1]
- If you have a recourse loan, your lender can attempt to seize other assets if you default on your debt and the balance you owe exceeds the value of your collateral.[1]
- With a lawsuit loan, the collateral you pledge is your expected personal injury case proceeds.
- Pre-settlement funding is nonrecourse, so you don’t have to worry about repaying USClaims if you don’t win your case.
- Unlike recourse loans, such as many mortgages or auto loans, your eligibility for pre-settlement funding is based on the strength of your case, not your credit score.
What Is a Nonrecourse Loan?
A nonrecourse loan is a secured loan where the collateral you pledge is the only thing your lender can collect as repayment of the debt. Unlike a recourse loan, the lender cannot pursue your other personal assets or income if the collateral does not cover the full amount you owe. Instead, the lender’s recovery is limited to the specific asset that secured the loan. This makes these loans different from many traditional loans that cover personal items, which may allow lenders to seek repayment beyond the collateral, depending on the loan terms and state law.
For example, if you take out a nonrecourse loan secured by a piece of real estate and later default, the lender can take ownership of the property. However, if selling the property does not fully repay the balance, the lender assumes the loss. They cannot collect the remaining amount from your wages, bank accounts, or other personal assets.
With pre-settlement funding, the collateral you put up is your anticipated lawsuit proceeds. If you win your case, your lawyer will remit a portion of your proceeds to USClaims in a lump sum to repay your cash advance. If you don’t win, you don’t have to repay us. We won’t be able to collect because the collateral you pledged (the expected proceeds) didn’t materialize.
Nonrecourse Loans vs. Recourse Loans: Key Differences
The differences between a recourse loan and nonrecourse loan can have a big impact on your financial risk. The table below compares the two types of financing.[2]
| Feature | Nonrecourse loan | Recourse loan |
|---|---|---|
| Risk for the borrower | Limited to the collateral pledged for the loan | You may lose the collateral and still owe the remaining balance |
| Risk for the lender | Higher because recovery is limited to the collateral | Lower because the lender may pursue other assets, subject to the loan agreement and state law |
| Common examples | Some mortgages, pre-settlement funding | Most personal loans, auto loans, credit cards, and many mortgages |
| Typical costs | May carry higher rates or fees because the lender assumes more risk | May carry lower rates because the lender has more collection options |
| Potential benefits | Protects your personal assets if the collateral does not fully cover the debt | May offer easier qualification or lower borrowing costs |
The primary difference between recourse loans and nonrecourse loans is your funder’s collection options. With a nonrecourse loan, your funder can only seize the collateral that secures your debt if you default.
For example, in some states, mortgages can be nonrecourse loans. If you default on a nonrecourse home loan, your lender can only foreclose on and sell your house to recoup their losses, even if your account balance is greater than what the property fetches on the market.
On the other hand, with a recourse loan, your lender can take possession of the collateral you’ve pledged, plus attempt to seize other assets if the sale of that collateral doesn’t satisfy your debt. For instance, if you default on a recourse auto loan, your lender could repossess and sell the vehicle and then sue you for any remaining balance owed.
Pros and Cons of Nonrecourse Loans
Beyond understanding what a nonrecourse loan is, you’ll want to know its benefits and drawbacks.
The biggest advantage of a nonrecourse loan is that your financial risk is limited because the lender can only collect the collateral that secures the loan. The biggest potential downside is that it may have a higher interest rate than a recourse loan, as your funder assumes a greater risk.[1] However, if you receive pre-settlement funding through USClaims, your repayment liability will be capped at twice the advanced amount (in most cases).**
Due to the increased risk, some funders may have stricter financial and credit-related criteria you need to meet to qualify. However, USClaims primarily uses the strength of your case to determine your eligibility for pre-settlement funding, not your credit score. We’ll work directly with your attorney to determine whether your case qualifies for funding.
Because pre-settlement funding is nonrecourse, if you don’t win your case, the collateral (your anticipated settlement) you promised doesn’t exist, so you don’t have to repay your cash advance. If you do win your case, your lawyer will repay USClaims from the settlement proceeds, pay any other fees, and then you’ll get a settlement check for the remainder.
When You Might Consider a Nonrecourse Loan
Generally speaking, you might consider a nonrecourse loan if you need to borrow money in a way that doesn’t put your other assets at risk. Just remember, because the funder assumes more risk, interest rates may be higher than recourse loan options.
If you’re the plaintiff in a civil case and are waiting for your lawsuit to resolve, a nonrecourse lawsuit loan could help.
A serious injury can leave you unable to work while medical bills, rent or mortgage payments, utility bills, and everyday living expenses continue to add up. Instead of feeling pressured to accept a low settlement just to cover your expenses, pre-settlement funding in the form of nonrecourse loans can provide cash while your attorney continues fighting for the compensation you deserve.
Who Qualifies for Nonrecourse Loans?
Qualification requirements depend on the type of nonrecourse loan. Nonrecourse loans often involve commercial real estate or other high value assets, so lenders usually look for a strong financial profile, such as strong credit, stable income, a low debt burden, and valuable collateral.
However, with lawsuit loans (pre-settlement funding) your credit score does not affect your case’s approval odds. Instead, we evaluate your application based on these criteria:
- You were the victim of an accident, and you sustained serious injuries.
- You’re working with a lawyer on a contingency basis (their pay is dependent on your legal outcome) who is willing to help you obtain a lawsuit loan.
- You’re actively pursuing a claim against the other party.
- You have a strong case where the other party is clearly negligent.
If you want to gauge your case’s approval odds, contact us to share your story. We can tell you everything you need to know about what nonrecourse loans are and let you know whether you’re a good candidate for pre-settlement funding.
Note: We provide pre-settlement funding in most states. However, due to current laws, we’re unable to help plaintiffs in Arkansas, Kentucky, Maryland, Montana, West Virginia, and Washington, D.C.
How to Request a Nonrecourse Pre-Settlement Loan
The pre-settlement funding process isn’t complicated. Here’s what you need to do to obtain a nonrecourse lawsuit loan:
- Hire a lawyer as soon as possible. Your attorney will guide you through your entire case and help you get fair compensation for your damages. You also need to be working with a lawyer on a contingency basis when you request pre-settlement funding.
- File a lawsuit. Your attorney will complete the court-required paperwork and collect evidence in support of your claim.
- Submit a request for pre-settlement funding. Get in touch with us via our website or by phone. Then, your lawyer will work closely with USClaims to complete the application process.
- Receive your money. If your application is approved, your lawsuit loan funds could be in your bank account within 24 business-day hours.*
- Repay your cash advance. If you win your case, you’ll pay us back in a lump sum using proceeds from your settlement.
Remember: Since pre-settlement funding is nonrecourse, you don’t owe us anything if you lose your case.
States Where We Provide Funding
USClaims serves plaintiffs in most states across the country. However, state law does affect where we are able to operate, so we currently cannot provide funding in Arkansas, Kentucky, Maryland, Montana, Washington, D.C., or West Virginia.
Request Nonrecourse Funding with USClaims
If you need financial support while your personal injury case moves forward, nonrecourse pre-settlement funding can provide the breathing room you need. Unlike a traditional loan, a nonrecourse loan means that repayment depends on the outcome of your case, so you don’t have to worry about making monthly payments or repaying your advance if you don’t recover compensation.
For more than 30 years, USClaims has helped injured plaintiffs cover everyday expenses while they pursue fair settlements. We have funded more than $1 billion over the past 10 years, and our submission process is fast, straightforward, and does not require a credit check. If you have an attorney and a strong case, you may qualify for funding in as little as 24 business hours.*
Submit a request now or call us today at 1-877-USCLAIMS to learn more about what a nonrecourse loan is and find out whether you qualify for nonrecourse pre-settlement funding.
What Is a Nonrecourse Loan? FAQs
What does a nonrecourse loan mean for a borrower?
A nonrecourse loan limits your financial risk because the lender can only collect the collateral that secures the loan. With pre-settlement funding, your anticipated lawsuit settlement serves as the collateral. If you do not recover compensation, you do not repay your advance.
How does a nonrecourse loan differ from a recourse loan?
The biggest difference between a recourse loan and nonrecourse loan is what happens if the debt is not repaid in full. With a recourse loan, the lender may pursue your other assets if the collateral does not fully satisfy the debt. With a nonrecourse loan, the lender generally can only recover the pledged collateral, subject to the loan terms and applicable law.
What risks do lenders face with a nonrecourse loan?
Because lenders cannot pursue a borrower’s other assets, they face a greater risk of loss if the collateral does not cover the amount owed. As a result, nonrecourse loans may have higher rates or stricter qualification standards than comparable recourse loans.
Can certain clauses convert a nonrecourse loan into a recourse obligation?
Yes. Some commercial nonrecourse loans include “bad boy” carve out provisions that make the borrower personally liable if they engage in certain wrongful acts, such as fraud, intentional misrepresentation, or bankruptcy related misconduct. These provisions are not standard in the definition of nonrecourse loans—they vary by loan agreement and typically do not apply to pre-settlement funding in the same way they do to traditional commercial loans.[3]
Disclaimer: Throughout this website, the term “loan” may be used for convenience to describe litigation funding. However, most of our transactions are not loans in the legal sense; we only extend loans in some limited jurisdictions. Common terms like “lawsuit loan” are used colloquially but misrepresent the nature of litigation funding.
Sources
- “Recourse vs. Nonrecourse Debt.” Internal Revenue Service, apps.irs.gov/app/vita/content/36/36_02_020.jsp. Accessed 18 Aug. 2025.
- Treece, Kiah. “Recourse Loans Vs. Non-Recourse Loans.” Forbes Advisor, Forbes, www.forbes.com/advisor/personal-loans/recourse-loans-vs-non-recourse-loans/. Accessed 28 July 2026.
- “Non-Recourse Loans.” Corporate Financial Advisor, https://corporatefinanceinstitute.com/resources/commercial-lending/non-recourse-loan/. Accessed 12 August 2026.
*Funding subject to approval. We typically fund within 24 business-day hours after we receive a fully-executed contract. Additional restrictions may apply. Call for details.
**2X CAP may not be applicable for all types of cases and/or jurisdictions.
