Is there a need for a commitment letter when borrowing money?

Jasz

VIP Contributor
If you’re borrowing money from a bank, then no. A bank will not require a commitment letter. This is because banks make loans based on your credit score and ability to repay the loan. They know that if they lend you money without requiring collateral or a co-signer, and you default on your payments, then they can get their money back by repossessing your house or car.

If you’re borrowing money from friends or family members, then yes. If they are lending you money, then they have every right to make sure they get their money back. They don’t want to lend someone $10,000 only to find out that person left town with no intention of paying them back! Asking for a commitment letter from people close to you shows them that you are serious about paying them back and that this isn’t just another scam where you try to borrow money and never pay it back.
 

Holicent

VIP Contributor
A commitment letter is a document that shows a lender's intent to provide a loan to a borrower. It's an agreement by the lender to make the loan and is binding on both parties. The purpose of a commitment letter is to show that the lender has agreed to make the loan, but it doesn't obligate the lender to actually make the advance.

The main purpose of a commitment letter is to give comfort to investors or other third parties who may be interested in participating in the project with you. A commitment letter tells them that they need not worry about having their funds tied up for an indefinite period of time while waiting for your project to be completed. They also know what your financial obligations are going to be and when they'll be paid off.

Commitment letters are common in many commercial transactions, and they're often used when financing real estate projects or equipment purchases by businesses. They're also sometimes used by banks as part of their lending policies, so you may have seen one without realizing what it was all about.
 

sincerem

VIP Contributor
I am not against what bank does, many individuals are just scammers, every little opportunity they see to scam, they'll just scam and leave the person who borrowed them money helpless. I don't blame the bank when it comes to collateral demands nor signing letter from a friend or relative, because they want to be sure of their money and not losing it. Because the funds they're borrowing out are peoples funds under their custody. If I'm in their shoes too, I will do everything to protect my funds and not borrowing to anyone I just met in my company who is just desperate for money
 
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