What is acceleration in the context of a loan?

What is acceleration in the context of a loan?

• A. Lender right to demand immediate repayment of the loan
• B. Commitment by a third party to satisfy borrower obligations upon default
• C. Loan repaid in full at maturity
• D. Contractual undertakings in financing agreements

Answer: (A)

In the context of a loan, acceleration refers to the lender's right to demand immediate repayment of the entire outstanding balance of the loan upon the occurrence of certain specified events, often defined in the loan agreement. This typically happens when the borrower defaults on the terms of the loan, such as missing payments or failing to meet other contractual obligations. The acceleration clause allows the lender to take action to safeguard their investment by speeding up the repayment process. Options that describe commitments by third parties, full repayment at maturity, or general contractual undertakings do not accurately capture the specific nature of acceleration. While these terms may relate to other aspects of financing agreements, acceleration uniquely emphasizes the lender's power to call the full amount due immediately, which is a critical component of protecting the lender's interests in the event of borrower default.

In the context of a loan, acceleration refers to the lender's right to demand immediate repayment of the entire outstanding balance of the loan upon the occurrence of certain specified events, often defined in the loan agreement. This typically happens when the borrower defaults on the terms of the loan, such as missing payments or failing to meet other contractual obligations. The acceleration clause allows the lender to take action to safeguard their investment by speeding up the repayment process.

Options that describe commitments by third parties, full repayment at maturity, or general contractual undertakings do not accurately capture the specific nature of acceleration. While these terms may relate to other aspects of financing agreements, acceleration uniquely emphasizes the lender's power to call the full amount due immediately, which is a critical component of protecting the lender's interests in the event of borrower default.