In non-recourse loans, the lender cannot go after the other assets of the borrower in case the value of the security falls short of the principal amount owed. Obviously, this type of loan is favorable to borrowers while the exact opposite called recourse loans are preferred by lenders. Because of its nature, refinancing this type of loan entails a process different from a recourse loan. Here are some practical tips should you decide to refinance a non-recourse loan:

Understand Refinancing

Refinancing refers to the process of getting a new loan to pay the original loan. The idea is to take on a second loan that has a lower interest rate so that you will owe less than you originally did. If you are not able to secure a second loan with an interest rate at least 2 percentage points lower than that of your first loan, refinancing would not make any sense. Also, this method would entail seeking a loan from a different lender since lenders generally do not refinance their own loans.

Determine How Much to Refinance

The next step would be to calculate the amount that you should refinance. Most probably, you have already given partial payments for your non-recourse loan. That means you should only refinance the part of the loan that has not yet been paid. Some people choose to refinance the entire amount of the loan even if they have already made partial payments. But do this only if you are in dire need of extra money. Remember that it is not smart to borrow more than what you need.

Transfer Collateral

Technically, the first lender will partially own the security that you used for that loan. You can recover that collateral by completing the payment for the principal amount of the loan. Talk to the first lender and have him agree to allow you to pay off the loan completely so that the security will be released. This way, you can use that property as collateral for your new loan or even for down payment. You need to do this step immediately so that the collateral will be ready in time when you take out the new loan.

Find a Non-recourse Loan

Make it your goal to find a new non-recourse loan. If possible, stay away from recourse loan that allows your lender to run after your other assets if the security is not able to pay off the loan. A non-recourse loan is the less risky option for you. Also, when finding a second loan, see to it that you get one with an interest rate that is at least 2 points lower than the original one. For example, if your first loan has a 7% interest rate, find one with 5% or lower. Search the market high and low and compare rates carefully to get favorable results. Do not forget to include other fees and costs associated with the loan. Even if a loan promises a low interest rate but it bombards you with exorbitant fees, you will not be able to alleviate your financial problems.