Advance Commitment

DEFINITION of 'Advance Commitment'

A promise or agreement to take some future action. For example, a promise by a buyer to purchase goods at a price set beforehand is an advance commitment.

BREAKING DOWN 'Advance Commitment'

In financial markets, parties may make an advance commitment to sell an asset before they own it; the seller often buys a futures contract to offset the risk of a price increase at the time of purchase. In banking, a financial institution will make an advance commitment to a borrower to lend funds on a specified date on agreed-upon terms.

Note that in mortgage banking an advance commitment is called a "standby commitment."

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