Which clause allows the lender to demand immediate payment if the borrower defaults?

• A. Acceleration clause
• B. Due on sale clause
• C. Prepayment clause
• D. Escrow provision

Answer: (A)

When a borrower defaults, the lender often relies on an acceleration clause. This provision allows the lender to declare the remaining balance of the loan due immediately, rather than continuing with scheduled payments. It speeds up the lender’s ability to get repaid because the usual, gradual payoff is replaced by a demand for full payment right away. If the borrower cannot pay, this accelerated amount can lead to foreclosure or other remedies to recover the loan. Other clauses work differently: a due on sale clause requires the loan to be paid in full if the property is sold; a prepayment clause sets terms for paying off the loan early (sometimes with penalties or notice requirements); an escrow provision requires setting aside funds to cover taxes and insurance, and does not trigger immediate repayment due to default.