Commitment Fee
Sometimes, you may be asked to pay a commitment fee by a lender to secure a certain loan at a certain rate, often with provisos favourable to yourself. (Well, you wouldn’t pay a commitment fee to reserve yourself a bad deal, would you?) You may have to pay the commitment fee to get at your loan right now, but the usual circumstances are as follows:
If you do not need a loan right now but you might want one in the near future, the commitment fee allows you to get a favourable rate which, should you need it, you know you will be able to take advantage of quickly. Basically, the commitment fee guarantees you that deal in the future with the previously agreed upon terms and conditions of the loan. In certain circumstances it can prove very useful, particularly if you think you have too good a deal to lose but at the same time feel you may possibly find something better.
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