What is an acceleration clause in a security instrument?

An acceleration clause in a security instrument is a provision that allows the lender to require the borrower to repay the entire loan amount immediately upon the occurrence of certain events, such as a default on the loan. This means that if the borrower fails to meet the terms of the loan, such as missing payments, the lender can "accelerate" the loan, demanding full payment of the outstanding balance rather than waiting until the agreed-upon maturity date.

This clause serves as a protective measure for lenders, ensuring that they can act promptly if a borrower defaults, rather than prolonging the situation and potentially risking further financial loss. Thus, the acceleration clause plays a critical role in the overall risk management of a loan agreement.

In contrast, the other options focus on different aspects of loan management, such as renewals, interest rate regulations, or repayment plans, which do not directly relate to the mechanism of accelerating repayment upon default.