Acceleration Clause: Definition, Example and Related Terms

An acceleration clause is a specific provision commonly found in loan agreements that allows the lender to require the borrower to repay all or part of the outstanding loan amount immediately if certain conditions are met. It's like hitting the fast-forward button on the repayment schedule, triggering the entire debt to become due right away.

For example, if a borrower frequently misses loan payments or violates other terms of a loan agreement, the acceleration clause can be invoked by the lender. This means that instead of continuing with the regular monthly installments, the borrower must pay the entire remaining balance of the loan immediately.

This is a critical clause in loan documents as it provides the lender with a tool to mitigate risk and ensure compliance with the loan terms. If a borrower shows signs of financial instability or becomes delinquent, the lender can use the acceleration clause to protect their financial interests.

From a borrower's perspective, it's important to be aware of and understand any acceleration clauses in their loan agreements. Being in default and having the acceleration clause invoked can lead to severe financial consequences, including the potential for legal action or foreclosure in the case of a mortgage.