What is the difference between a loan commitment and a letter of credit?

A. A loan commitment is a promise made by a bank that allows a customer to borrow up to a specified maximum for the remaining time of the commitment. The bank normally charges a commitment fee and a fee for any unused portion of the commitment.

B. Letters of credit are insurance policies sold for a fee that state that the bank will pay in event of nonpayment by the party that draws the line of credit. It is not expected that bank funds will be necessary to cover the letter except in unusual circumstances.

C. Both A and B are correct.

D. Only A is correct.