Which clause gives the lender the right to accelerate the loan if the borrower defaults?

• A. Acceleration clause
• B. Escrow
• C. Prepayment clause
• D. Insurance provisions

Answer: (A)

When a loan includes an acceleration clause, the lender is given the option to declare the entire remaining balance due immediately if the borrower defaults. This clause is a safety mechanism that protects the lender by allowing a quick path to repayment if terms aren’t met—such as missing payments or breaching covenants. Once triggered, the borrower must pay the full outstanding balance (often with accrued interest and fees) rather than just the missed installment, and the lender may pursue remedies like foreclosure or a lawsuit if payment isn’t made.

Escrow is about setting aside funds to cover taxes and insurance, not about speeding up repayment. A prepayment clause governs how and when a borrower can pay off the loan early, sometimes with penalties. Insurance provisions require maintaining adequate coverage on collateral, not accelerating repayment.