Business, Legal & Accounting Glossary
An acceleration clause is put into a loan agreement to require the borrower to pay the unpaid balance for specific reasons if a default occurs.
n. a provision in a contract or promissory note that if some specified event (like not making payments on time) occurs then the entire amount is due or other requirements are due now, pronto. This clause is most often found in promissory notes with instalment payments for the purchase of real property and requires that if the property is sold then the entire amount of the note is due immediately (the so-called “due on sale clause”). Some states prohibit “due on sale” and always allow the new property owner to assume the debt.
The provision in a credit agreement, such as a mortgage, note, bond, or deed of trust, allows the lender to require immediate payment of all money due if certain conditions occur before the time that payment would otherwise be due.
The agreement may call for acceleration whenever there is a default of any important obligation, such as nonpayment of principal or interest, or the failure to pay insurance premiums.
An acceleration clause is a loan agreement feature that allows the lender to demand immediate repayment of a loan. When a loan covenant is broken or loan payments are not made for a certain period of time, the clause is usually triggered. In the case of a mortgage, the acceleration clause may not be triggered for several months. When there is a breach, the lender has the option to accelerate payment; however, acceleration is not always necessary. Instead, a lender may choose to restructure the underlying loan.
Acceleration clauses are intended to protect the lender from situations in which a borrower’s finances are deteriorating, allowing the lender to reclaim borrowed funds before the borrower declares bankruptcy.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Acceleration Clause are sourced/syndicated and enhanced from:
This glossary post was last updated: 13th April, 2022 | 0 Views.