Acceleration Clause

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Acceleration Clause: Definition & Examples

Accrued Revenue is an accounting term that refers to revenue that has been earned but not yet received in cash.

Acceleration Clause Explained

An acceleration clause is a provision within a loan agreement that allows the lender to demand the full repayment of the remaining balance of the loan immediately.

An acceleration cause serves as a protective measure for the lender. It ensures that the lender’s investment is secure by allowing them to call in the full loan amount if certain agreed-upon conditions aren’t met.

This demand can be triggered if the borrower violates specific terms of the agreement, such as missing payments.

For the borrower, understanding this clause is crucial as it carries significant financial implications. Violating the terms that trigger the clause can lead to serious consequences, including foreclosure in the case of a mortgage loan.

Here are some key insights:

  • Protection for Lenders: Lenders can demand full repayment if conditions aren’t met.
  • Incentive for Borrowers: While it protects the lender, the clause also acts as a motivating factor for borrowers to adhere to the agreement’s terms. Legal Clarity: It outlines specific scenarios where the clause can be triggered, offering transparency and setting clear expectations.
  • Potential Consequences: It carries real financial implications, from foreclosure to legal action.

An Example Of An Acceleration Clause

Imagine a company purchases a new machine for $10,000 with a useful life of 5 years. With accelerated depreciation, the company can write off a more significant part of the asset’s cost in the first few years.

To understand an acceleration clause, let’s look at a real-world example.

Picture yourself as a borrower, having just signed the dotted line for a home mortgage. Everything seems to be running smoothly, but nestled within the contract is this vital clause.

  1. The Agreement: You have a 30-year mortgage with monthly payments. The contract includes an Acceleration Clause, specifying that if you miss three consecutive payments, the lender can demand the full remaining balance immediately.
  2. The Missed Payments: Life happens, and you miss three mortgage payments in a row. This triggers the Acceleration Clause within your contract.
  3. The Demand: Upon this trigger, your lender can legally demand that you pay the entire remaining balance of the mortgage at once.
  4. The Implications: Failing to meet this demand could lead to foreclosure. The lender can take legal action to seize your property and sell it to recoup their money.

This example highlights how the Acceleration Clause is not just a theoretical construct but a real and powerful provision that can have lasting impacts on both parties involved.

While the clause serves to protect the lender, it’s essential for borrowers to recognize the gravity of this provision. It underscores the importance of adhering to the terms of the agreement and keeping up with payments.

Understanding the Acceleration Clause can save you from unexpected turmoil and financial stress. It’s more than just a legal term; it’s a practical aspect of financial agreements that requires attention and awareness from both the lender and borrower.


What triggers an acceleration clause?

An acceleration clause can be triggered by specific violations of the loan agreement, such as missing payments, declaring bankruptcy, or transferring property without the lender’s consent. The exact triggers will be outlined in the contract itself.

Can I negotiate the terms of an acceleration clause?

In some cases, the terms may be negotiable. It’s wise to discuss the clause with your lender or legal advisor before signing to understand what might be flexible.

Is an acceleration clause present in every loan agreement?

Not necessarily. While common in many agreements, it might not be present in all. Always review your contract thoroughly to understand all the terms and conditions.

What happens if the acceleration clause is triggered?

If triggered, the lender may demand immediate full repayment of the remaining loan balance. Failure to comply might lead to legal actions, including foreclosure in the case of mortgages.

What happens if the acceleration clause is triggered?

While you can try to negotiate the terms, avoiding it entirely might not be an option in many standard agreements. Understanding and complying with the terms is usually the best approach.

Does the acceleration clause apply to small loans?

Yes, Acceleration Clauses can be found in various types of loans, big or small. It’s not restricted to large mortgages or business loans.

What can I do if the acceleration clause is triggered?

If the clause is triggered, it’s vital to communicate with the lender immediately and explore options such as refinancing or negotiating a repayment plan. Legal advice might also be necessary.