A more thorough explanation:

A commitment fee is an amount of money paid by a borrower to a lender as a promise to lend money at a specific interest rate and within a particular time frame. This fee is usually paid upfront and is non-refundable.

For example, if a borrower wants to secure a loan from a bank, they may be required to pay a commitment fee to ensure that the bank will lend them the money they need. The commitment fee is a way for the lender to guarantee that the borrower is serious about taking out the loan and will follow through with the process.

Commitment fees are common in real estate transactions, where a borrower may need to secure financing to purchase a property. In this case, the borrower would pay a commitment fee to the lender to ensure that the loan will be available when they are ready to close on the property.

Overall, a commitment fee is a way for lenders to protect themselves from potential losses and ensure that borrowers are serious about taking out a loan. It is important for borrowers to understand the terms and conditions of the commitment fee before agreeing to pay it.