A commitment fee is a fee charged by a lender in exchange for their agreement to make a loan. This fee allows a borrower to get a firm commitment for financing before making a purchase offer. Let’s say that someone wants to buy a commercial property. Before making a sales offer, the buyer approaches a lender about securing funds. The lender looks at the buyer’s creditworthiness and payment potential. At that point, they will tell the buyer if they are willing to provide a loan commitment or not. If they are willing, the buyer will pay the commitment fee to the lender to secure the loan promise. This commitment usually means the lender is willing to loan up to a specific amount at a certain interest rate up to a certain date. If the buyer does not take the loan by that date, the lender’s commitment is no longer there.
