Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Banking, Lending, and Credit Industry

Acceleration Clause (Loan Agreement) - Explained

What is an Acceleration Clause?

Written by Jason Gordon

Updated at April 18th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is an Acceleration Clause?How Does an Acceleration Covenant Work?How an Acceleration Covenant Works

What is an Acceleration Clause?

An acceleration covenant or an acceleration clause refers to provision used by a lender to demand repayment of all outstanding loans if the borrower breaches the terms on the contract. This covenant is often used in debt contracts or loan arrangements between the two parties. A lender cannot just apply the acceleration covenant in any situation, there are certain criteria for accelerating repayment. A breach in the terms of a loan contract often triggers the use of an acceleration covenant, in this situation, the lender decides to accelerate the repayment of loan.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does an Acceleration Covenant Work?

Certain debt instruments make use of the acceleration covenant or clause, an example is swap agreement. This clause provides a lender with an option to hasten the repayment of loans if a borrower defaults the terms of repayment outlined in the debt contract. A borrower that violates a term of the contract can be asked to repay all of an outstanding loan before the maturity date. An acceleration covenant protects lenders from breaches of term of covenant that they might suffer from borrowers. Usually, every loan arrangement has certain credit requirements that the borrower must agree to, if a borrower defaults, the lender can use the acceleration covenant requesting that the borrower repays the loan before the specified date.

How an Acceleration Covenant Works

An acceleration clause or covenant is majorly used in mortgage loan agreements, swap agreement and real estate loan contracts. However, there are slight differences in how acceleration clauses work in different contract settings. Since not all acceleration covenants are the same, how they work also differ. An overdue payment or lateness in payment is one of the factors that triggers the application of the acceleration clause. This lateness in payment is called payment delinquency. The terms of the contract determines when the acceleration clause will be applied. Some contracts might permit a borrower to be delinquent or miss some payments before the acceleration clause takes effect while some contracts do not permit this. A contract breach also cause an acceleration covenant to take effect.

acceleration clause

Was this article helpful?

Yes
No

Related Articles

  • FHA 203(k) Loan - Explained
  • Closed-End Mortgage - Explained
  • Default (Non-Payment) - Explained
  • Bank Insurance Fund - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand