In what circumstance is an acceleration clause commonly invoked?

An acceleration clause is a provision in a loan agreement that allows the lender to demand the full repayment of the loan if certain conditions occur, typically related to the borrower's failure to meet their obligations. The most common circumstance for invoking an acceleration clause is when the borrower defaults on payments. This means that if the borrower fails to make regular payments as agreed upon, the lender has the legal right to accelerate, or speed up, the repayment process and require the borrower to pay the entire remaining balance immediately.

In many loan agreements, this clause is included to protect the lender’s financial interests, ensuring they can take swift action if the borrower is unable or unwilling to fulfill their payment commitments. If a borrower defaults, it signals a significant risk for the lender, thus making this clause a crucial component of the loan contract.

Other circumstances, such as a change in the interest rate or the sale of the property, do not typically trigger the acceleration clause. While paying ahead of schedule might be beneficial to the borrower, it usually does not activate the acceleration clause either. Hence, it is the borrower's default on payments that primarily leads to the activation of this clause.