Which clause gives the lender the right to demand payment in full upon default?

• A. Prepayment clause
• B. Acceleration clause
• C. Late payment clause
• D. Escalation clause

Answer: (B)

In loan agreements, the key mechanism that lets a lender demand the entire remaining balance if the borrower defaults is called an acceleration clause. When default occurs, this clause “accelerates” the repayment schedule, turning what would be future installments into an immediate demand for full payment of the outstanding principal, plus any accrued interest and fees.

Context helps: a lender doesn’t normally require full payment just for a late payment or a minor lapse. The acceleration clause specifically triggers when there is a default, giving the lender the right to demand everything now rather than waiting for the scheduled payments to come in. Some loans require a notice or a cure period before acceleration, but the end result is that the entire balance becomes due right away.

Contrast with the other clauses: a prepayment clause governs how you can pay off the loan early and may outline penalties or fees for paying off ahead of schedule; a late payment clause outlines penalties for late payments but doesn’t automatically demand full balance upon default; an escalation clause would relate to increasing payments or terms under certain conditions and isn’t about accelerating the debt in default.