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Letter Of Credit Cost Calculator

Work out letter of credit cost instantly with clear inputs, formula shown and shareable results.

About Letter Of Credit Cost Calculator

A documentary letter of credit substitutes the bank's credit for the buyer's. Commission is charged per quarter or part quarter of the tenor on the full value, plus flat negotiation and messaging charges, so short tenors are billed at a minimum of one quarter.

Formula

LC cost

Commission = value × rate per quarter × quarters (rounded up) + flat charges

Worked example

With the default values below, Letter Of Credit Cost Calculator returns Total Cost Of The LC of $42,500.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Letter Of Credit Valueminimum 0
5,000,000
Commission Per Quarteraccepts 0–3 %
0.35 %
Tenor In Monthsaccepts 1–36
6
Negotiation And Swift Chargesaccepts 0–2 %
0.15 %

Results

Total Cost Of The LC
$42,500.00
Opening Commission
$35,000.00
Other Bank Charges
$7,500.00
Annualised Cost Of The Guarantee
1.700%

Step by step

  1. 1Values used
  2. 2LC cost
  3. 3Total Cost Of The LC= 42,500.00
  4. 4Opening Commission= 35,000.00
  5. 5Other Bank Charges= 7,500.00
  6. 6Annualised Cost Of The Guarantee= 1.700

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax or compounding frequency into account.
  • Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • Figures are estimates. Lenders apply their own rounding, fees and eligibility rules, and rates change. This is not financial advice — confirm the numbers with your lender.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Figures are estimates. Lenders apply their own rounding, fees and eligibility rules, and rates change. This is not financial advice — confirm the numbers with your lender.

Frequently Asked Questions

Who pays the LC charges?

Usually split — the applicant pays issuing charges and the beneficiary pays advising and negotiation charges, but the sales contract decides.

Does an LC use up credit limits?

Yes. It is a contingent liability and is carved out of the buyer's non-fund-based limit.

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