Lender Credit
Direct definition
A lender credit is money a lender applies toward a borrower's closing costs, often in exchange for accepting a slightly higher interest rate.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Borrowers can sometimes choose to trade a portion of potential rate savings for a credit that offsets upfront costs, which can help reduce cash needed at closing.
Why it matters
Whether a lender credit makes sense depends on how long a borrower expects to keep the loan, since a higher rate accrues cost over time in exchange for lower upfront costs.
Where you may see it
- Loan Estimate
- Closing Disclosure
- Rate and cost comparison worksheets
A real-world example
Educational and illustrative only
A common misunderstanding
A lender credit is not free money; it's typically financed through a higher interest rate over the life of the loan.
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- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026