What is Acceleration Clause? Plain English Explanation
Definition
An acceleration clause allows a lender or creditor to demand immediate payment of the entire remaining balance if certain conditions are triggered, such as a missed payment, breach of terms, or change in financial condition.
Why It Matters in Contracts
Acceleration can turn a manageable monthly payment into a demand for tens or hundreds of thousands of dollars overnight. A single missed payment or technical violation could trigger the full balance becoming due immediately.
Real-World Example
A business loan has an acceleration clause triggered by missing two consecutive payments. The business misses payments during a slow season and suddenly owes the entire $200,000 balance instead of the $5,000 monthly payment.
What to Watch For
- 🔴Low threshold for triggering acceleration (single missed payment)
- 🔴Broad trigger events beyond payment defaults
- 🔴No cure period to fix the issue before acceleration kicks in
- 🔴Cross-acceleration with other loans
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Disclaimer: This glossary entry is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for guidance on your specific situation.