Acceleration Clause (Loan Acceleration)

Definition

The term acceleration clause refers to a contract provision that requires the borrower to immediately pay off a loan under certain conditions.  Acceleration clauses can appear in mortgages, student loans, business and personal loans, as well as leases.

Explanation

Also known as loan acceleration, an acceleration clause may appear in the terms and conditions of a loan or lease.  This clause gives the lender the right to force the borrower to immediately pay off their loan under certain conditions.  Acceleration covenants help protect lenders from the risk of default on loans.

For example, home mortgages typically contain an acceleration covenant, allowing the lender to demand immediate payment of outstanding principle and accumulated interest if the borrower stops making their monthly payment.  Lenders may invoke this clause as part of their foreclosure process.

Borrowers can oftentimes stop a lender's right to loan acceleration by correcting the conditions that triggered the clause.  For example, a borrower may be able to avoid foreclosure by agreeing to compensate the lender for their collection costs as well as making past-due payments.

Student Loan Acceleration

The federal government includes acceleration clauses in their student loan contracts.  Demand for the immediate payment of the student loan's principle and accrued interest may be triggered by any of the following conditions:

  • The student does not enroll at least half-time at the school used to determine eligibility for the federal student loan.
  • The money borrowed was not used to pay for expenses related to the student's education at the school used to determine eligibility for the federal student loan.
  • False statements were made on applications used to determine eligibility to receive a loan.
  • The borrower goes into default on their loan.

Related Terms

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