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Pls do not handwritten for easy reading Question:- i) Explain what is a loan commitment and...

Pls do not handwritten for easy reading
Question:-
i) Explain what is a loan commitment and a letter of credit
ii) Discuss what is the difference between a loan commitment and a letter of credit.

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Answer #1

Loan commitment is a promise from a lender that the amount borrowed as loan will be made available to the borrower at a specific interest rate for a certain period. It is generally provided after the borrower has cleared a rigorous underwriting process. A letter of credit is a guarantee by one bank to another that the payments due will be made by the speciifed person.

A loan commitment letter is an assurance that the loan will be approved and funded for closing. It does not guarantee that there will be no default by the borrower. The letter of credit gurantees the payments due. It acts as a coverage for default.

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