Legal Definitions - loan commitment

A loan commitment is a promise made by a lender to a borrower to lend a specific amount of money at a certain interest rate, usually for a specific purpose and within a specified period. This commitment is legally binding and obligates the lender to provide the loan as agreed upon.

For example, if a borrower is looking to purchase a home, they may receive a loan commitment from a lender stating that they will provide a mortgage loan of $200,000 at a fixed interest rate of 4% for a period of 30 years. This commitment ensures that the borrower will have the necessary funds to purchase the home and the lender is legally obligated to provide the loan as agreed upon.

Another example could be a business seeking a loan commitment from a bank to finance a new project. The bank may provide a loan commitment stating that they will lend the business $500,000 at a variable interest rate for a period of 5 years. This commitment allows the business to move forward with their project knowing that they have the necessary funds and the bank is legally obligated to provide the loan.

These examples illustrate how a loan commitment is a binding agreement between a lender and a borrower, providing the borrower with the necessary funds and the lender with the assurance that the loan will be repaid according to the agreed upon terms.