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What is a "commitment fee" in the case of borrow accounts? What is the rationale behind commitment fee.?

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Question ajoutée par VENKITARAMAN KRISHNA MOORTHY VRINDAVAN , Project Execution Manager & Accounts Manager , ALI INTERNATIONAL TRADING EST.
Date de publication: 2014/10/29
georgei assi
par georgei assi , مدير حسابات , المجموعة السورية

I agree with Mr. Ayyub Khan answer

Khaled Mohee Eldeen Abbas Mahmoud
par Khaled Mohee Eldeen Abbas Mahmoud , Chartered Accountant # 10465 , Self-employed

I agree with answers provided

Ayyub khan Ibrahim Khan Deshmukh
par Ayyub khan Ibrahim Khan Deshmukh , Finance Manager , Ahmad Al-Sarraf General Trading & Contracting Est.

A fee charged by a lender to a borrower for an unused credit line or undisbursed loan. A commitment fee is generally specified as a fixed percentage of the undisbursed loan amount. The lender charges a commitment fee as compensation for keeping a line of credit open or to guarantee a loan at a specific date in future. The borrower pays the fee in return for the assurance that the lender will supply the loan funds at the specified future date and at the contracted interest rate, regardless of conditions in the financial and credit markets.

padmakumar pathiyil
par padmakumar pathiyil , Marketing Consultant , Management Consultancy

Normally the borrower needs to pay a charge for accessing the loan in future from the lender. This is called the commitment fee. The main difference between commitment fee and interest is that the commitment fee is charged on the undisbursed loan amount, while the interest is charged on the disbursed amount of the loan. 

Vinod Jetley
par Vinod Jetley , Assistant General Manager , State Bank of India

The fee levied by a creditor on the borrower for future or unused credit is called commitment fee. Definition: The fee levied by a creditor on the borrower for future or unused credit is called commitment fee. In the case of mortgage, the lender does not disburse the credit at one go to the builder. In most of the cases, the loan disbursal is linked to the project completion stage. Normally the borrower needs to pay a charge for accessing the loan in future from the lender. This is called the commitment fee. Description: In general a commitment is a pledge or word of honor by one party to another to operate in a particular way. In real estate business, commitment is a promise by the lender to provide a loan to the borrower by a specific date at a certain rate of interest. It is a written promise to insure or reserve the loan for the prospective borrower as per the details mutually agreed upon. The amount charged for making such a commitment is called commitment fee.

FITAH MOHAMED
par FITAH MOHAMED , Financial Manager , FUEL AND ENERGY CO for transportion petroleum materials

AGREE WITH ALL ANSWERS  

Abdallah Abu Zeyad CMA
par Abdallah Abu Zeyad CMA , Finance Account Manager , Toyota - Abdul Latif Jameel Motors - KSA

I think we can use commitment cost definition here,

 

Committed cost arise from holding property, plant, and equipment. Examples are insurance, real estate taxes, lease payments, and depreciation. They are by nature long-term and cannot be reduced by lowering the short-term level of production.

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