top of page
Acceleration Clause

Acceleration Clause

An acceleration clause is a provision in a loan contract written by the lender which allows the lender to demand payment of the entire balance of the loan, out of the blue, in the event of default. A default can be either a missed payment or a breach of another loan contract term. This clause outlines precisely what needs to be done and the amount required for repayment. Generally, these conditions are met, leading to a total cost of the requested loan. Therefore, it is essential to read through the entirety of a loan contract before signing it, as this clause is often found buried in the fine print. A few common reasons found in acceleration clauses that could trigger full loan repayment include:

  • Missing a payment.

  • Breaching the loan agreement.

  • Pledging the loan amount as collateral for another loan.

It is common for the lender to spell out a timeline with which the borrower must comply with its agreement if it wants to avoid acceleration of the loan with a repayment deadline. Borrowers must be in constant contact with their lender to ensure that their loan is in good standing and aware of the consequences that could be incurred should they fail to meet the outlined requirements. In banking and finance, lenders can sometimes take advantage of borrowers by defaulting on loan payments through an acceleration clause in the contract. An acceleration clause is a great tool for the lender because it allows them to call due the entire loan balance quickly and easily, with just one demand for full repayment. This clause can be particularly beneficial in protecting lenders from a deadbeat borrower who attempts to take advantage of their loan agreement, by not making payments or breaching other loan provisions.

An acceleration clause is an essential provision in loan agreements that gives the lender the right to demand accelerated payment of the outstanding debt if certain conditions are met. This clause is usually included in lending deals to protect lenders' interests in cases where borrowers default on their loans or violate other terms and conditions of the agreement. Acceleration clauses can be triggered by various events, including late payments, failure to maintain collateral or insurance, and the sale or transfer of the collateral without the lender's consent. For example, a mortgage loan may include an acceleration clause whereby the borrower must pay the remaining balance if they fail to make timely payments or meet other obligations. In some cases, the lender may also have the option to seize and sell the collateral to recover their losses. As a result, borrowers must read and understand the terms of any loan agreement before signing to avoid the possibility of triggering an acceleration clause and potentially facing financial consequences.

An acceleration clause is an essential condition in a real estate finance instrument that allows a lender to declare all sums owed immediately due and payable upon the occurrence of certain events. This clause is helpful for the lender as it ensures that the loan is secured in case of default. The clause typically includes the sale of the property or a delinquency in the repayment of the note as events that could trigger a call for funds. For instance, if the seller defaults on the loan payments, the lender can exercise the privilege granted by the Acceleration Clause and call for full repayment of the loan balance. However, it is also essential to remember that the Acceleration Clause does not always mean a full loan refund. Sometimes, lenders may call for only a partial payment of the loan balance instead of full repayment. Although uncommon, Acceleration Clauses may also be included in rental agreements to secure payment.

An acceleration clause is an essential part of any loan agreement. It is a provision that allows the lender to demand and require that the borrower repay all or the amount of the loan's outstanding balance if specific requirements are unmet. This clause is typically included in all loan contracts, including installment loans, mortgages, and other consumer loans. The criteria for repayment can consist of failure to make regular payments on time, failure to maintain adequate insurance or collateral, or breach of any other agreement between the lender and the borrower. By invoking this clause, the lender can force the borrower to pay off the entire loan, plus any applicable penalties, all at once. This clause also benefits both the borrower and the lender because it helps protect the lender's interests in case of default. The borrower also benefits from this clause in that it ensures that all loan payments are kept up to date and that the loan is paid off in an orderly manner.

For borrowers, an acceleration clause can be an unwelcome surprise. Not only do they face the prospect of having to pay all remaining loan balances immediately, but they also risk damaging their credit score significantly. Nevertheless, an acceleration clause is an important financial tool for lenders and borrowers. It allows lenders to demand full repayment of loan balances if they feel their loan agreements have been breached, and it will enable borrowers to reap the benefits of their loan arrangements when paid in full. Despite the potential pitfalls of having an acceleration clause in place, such a provision gives both parties more control over their financial accounts and can help to protect them against potential losses.

bottom of page