Commitment Fee Law and Legal Definition
A lender extending loan incurs several costs for administrative and clerical tasks associated with the transaction. Costs are coupled with loan from the time of issue all the way through to the posting of the final payment. A commitment fee is a method used by banks to recover the cost from the customer. A commitment fee is also termed as lender's charge for contracting to hold credit available. A commitment fee is different from interest. A bank charges commitment fee to:
- keep a line of credit open; or
- guarantee a loan at a certain future date.
A bank can waive fee for some borrowers. When the fee is waived, it is is replaced with interest.
