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Loan Commitment

Categories: Credit, Mortgage

See: Line of Credit.

People do lots of stupid things when they’re in love...like make commitments a little prematurely. Thankfully, with a loan commitment, the “commitment” is referring not to you, but to the bank doing the loaning.

A loan commitment is an agreement (usually a letter) from the bank to a consumer or business letting them know the low-down on how much money they’ll lend them, for what interest rate, and other deets...all that super-fine print. It’s like the bank saying “I do...with these stipulations attached." There’s nothing more romantic in the world of finance.

A loan commitment can be either closed (just giving a one-time, lump-sum loan, like a normal loan) or open, which makes it kind of like a credit card (as long as you’re making your payments, of course...ain’t nothing in finance fo' free). The less risky of a person you are, the better deal you can get in your loan commitment (re: interest rate, and maybe more friendly terms and conditions).

Find other enlightening terms in Shmoop Finance Genius Bar(f)