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    Car Loan Acceleration Clause

    The acceleration clause, also known as an 'acceleration covenant', is an important term in a car loan glossary. This car loan agreement term implies that the borrower needs to pay off the loan immediately in certain conditions. Failing to pay the car loan EMIs on time or selling the car are some of the conditions which will the acceleration clause present in the agreement. However, this clause doesn’t get activated automatically. It is completely up to the bank or the lender whether it wants to activate this clause or not. Most of the banks give repeated chances to the borrowers to fix the issues before triggering the clause.

    In legal terms, this clause is a provision given in the car loan contract which specifically mentions that in case of any unpredicted circumstance the entire amount will become due and the borrower has to pay the amount to the lending authority at an immediate notice. To make it simpler, if you as a borrower default on paying the EMIs and other payments related to your loan on time, then the bank has the right to demand for the repayment of the entire amount within a specified time frame. This clause, in other words, is a protection cover for the lenders against the loan defaulters. It protects the financial interest of the lender in cases when the borrowers fail to repay the EMIs and breach the contract.

    An acceleration clause, thus, is a vital element to be read and taken care off before signing the loan agreement. The fact is that most of the loan borrowers in the country are not well-aware of this vital clause and because of this lack of knowledge they often face issues due to defaulting on the loan. In order to avoid such undesired complications at the later stages of the loan tenure, here we have presented all the basic information related to car loan appreciation clause.

    When can the Lender Activate the Acceleration Clause?

    If there is an acceleration clause in your car loan agreement, the lender can activate the clause and send you an Acceleration notice if you miss to pay a monthly payment against your loan. Here is an example to help you understand better:

    Example-

    Let's pretend that you have an outstanding loan balance of Rs.5 lakh from your loan and you have failed to pay an EMI of Rs.30, 000 for one month. In such circumstance, if the lender wants, then utilising the mutually agreed upon provision the lender can ask you to pay Rs.5 lakh all at once within a particular period.

    In case of failure, the lender will have the right to repossess your car and sell it to collect the remaining amount.

    Which are the Grounds for Car Loan Acceleration?

    In the agreement of car loan, all the conditions which can legally trigger the acceleration clause are detailed and based on that the lender can demand repayment of the entire remaining loan amount. The most common circumstances which are considered as defaults are enlisted here:

    • If the borrower defaults on the monthly instalment payments which were agreed upon by both the parties while signing the loan document. Though a certain number of late EMI payments are permitted, it varies from lender to lender.
    • In case the borrower fails to pay the entire amount on time as mutually decided by both the parties at the beginning of the contract.
    • During situations when the borrower declares bankruptcy while he/she still has an unpaid car loan amount.
    • As a result of failure to buy a car insurance, moving the car to some other place or selling it without permission, destroying or losing the car intentionally or unintentionally
    • If the borrower commits any other intentional breaches, the lender can ask for a complete repayment of the remaining amount.

    All the conditions that constitute a default are detailed in the car loan agreement, so in case you fail to understand how and why you defaulted and received the acceleration notice, look at your agreement to understand.

    How Acceleration Clause is Used for Repossession?

    The acceleration clause is considered as one type of repossession notice which the borrower may receive from the lender when his/her car loan is in default. This means, if you have an acceleration clause in your car loan agreement, your car is at the risk of repossession under circumstances such as late or missed payments, failure to keep your car insured or in case you have breached the loan agreement. Here are the steps how this clause is used to initiate the process of repossession:

    • Acceleration Notice-An acceleration notice is the first intimation that you may receive from the borrower when you have defaulted on your car loan. It is sent by the lender to inform you that since you have fallen behind in payments, the full amount of the loan is due and you have to pay the entire amount to avoid repossession of your car.
    • Notice and Opportunity to Cure- In the next step, the lender will send you a Notice and Opportunity to Cure notifying about the default and specifying a time-frame within which you have to pay all the dues to save your car from repossession. This notice is actually an opportunity for the borrower to repay the due amounts of past and get back the car.
    • Post-Repossession Notice- In case you fail to pay the outstanding amount within the given time, the process will be escalated to the last stage by the lender where you will be sent a post-repossession notice mentioning the date and time of the sale. This notice confirms the repossession of your car and after that there is no way to get it back.

    How to Avoid Acceleration of a Car Loan?

    You should stay informed about the presence of acceleration clause in your loan agreement.

    • In case you default on your car loan, the loan will only accelerate if there is an acceleration clause between you and the lender in your loan agreement. If there is no such clause, then the lender can only ask you to pay off the due amount of the past. But, he will not be able to demand for a full repayment or can't repossess your car. Hence, while signing the loan agreement make sure to go through all the clauses well and agree only if you are comfortable with all of them.
    • If you due to certain reasons don't feel confident about your repayment ability and feel that you might miss to pay a few payments, don't enter into an agreement where there is the presence of an acceleration clause. If the lender with whom you are in talk is not ready to eliminate this clause from the agreement or not ready to include a Notice and Right to Cure clause, you can look for other lenders and opt for a loan on mutually agreeable terms.
    • In situations, when both you and the lender agree to have an acceleration clause in the car loan contract, make sure that all the terms and conditions are mentioned clearly in the agreement. If the lender wants the provision of accelerating the loan in case the consumer fails to miss even one of the grounds for acceleration, then the lender has the right to accelerate the debt. Also, discuss with the lender and ask him how many chances he is willing to give before accelerating the loan. Whatever conditions you both agree upon, make sure is clearly mention in the agreement to avoid any kinds of confusions in future.
    • Once the loan is accelerated by the lender, the entire amount will become due and there are very few instances where the borrower has been able to repay the loan amount and clear his/her debt. To avoid such a situation, if you in any month fail to pay the EMI, immediately talk to the lender and discuss the repayment options as well as for some extended time.
    • In case, you already have received an acceleration notice from the lender, don't give up. Try to negotiate with him to avoid repossession. Remember, the intent of the lender behind sending the message is often to compel you pay the outstanding amount and not to repossess the car as due to the depreciation of the car value, this will not be a good deal for him. Hence, try to convince him and settle down on reasonable payment options to avoid losing your car forever.
    • The repossession rules are not the same in every state. In some of the states, the lender is allowed to send an acceleration notice only once. Hence, if you have already a record of defaulting on a car loan and curing it in past, ensure not to default on the loan once again. If you default on the loan for a second time, it is less likely that the lender will give you a second chance of curing the default. Even if he wants in certain cases, he might not have the provision to do so.

    In the recent years, it has been seen several times that the lenders brought the acceleration clause into effect for various reasons. The clause allows the lender to repossess the car which has been hypothecated by the lender to collect the loan amount in default cases. Naturally, in such circumstances, the borrower goes through huge financial stress as he/she needs to repay the entire amount immediately in order to avoid legal proceedings. This is why it is extremely important for you as a borrower to read through the promissory note minutely and go through each and every point mentioned in the contract in detail before signing the car loan agreement. It will help you to stay informed, wary and prepared to face any such situations in future.

    Customer Reviews

    • Bank of Baroda Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      The experience with them has been quite good with this loan where the loan amount has been sufficient. The interest rate which they offered has been nominal when compared with the market rate and there has not been any extra charges which they had made so far. Their customer support team had also been supportive as well.
      Was this review helpful? 0
      , navi mumbai
      Reviewed on Jan 18, 2019
    • HDFC Bank Car Loan
      "Good Experience"
      0.5 5.0/5 "Blown Away!"
      Before three years I purchased second vehicle that is Hyundai I 10 , the documentation process was good with HDFC. The dealer coordinated with the bank, hence the process was quick. I got multiple options but I chosen HDFC, the Interest rate is better because I am an existing customer.
      Was this review helpful? 0
      , delhi
      Reviewed on Jan 18, 2019
    • HDFC Bank Car Loan
      "Good Experience"
      0.5 5.0/5 "Blown Away!"
      I was taken car loan from HDFC, first time I purchased SANTRO car, the documentation was very convenient. They gave me the door step service I went to the dealer and they done the process, and on time I got the car deliver. They gave me the flexible emi option.
      Was this review helpful? 0
      , delhi
      Reviewed on Jan 18, 2019
    • SBI Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It has been quite a good experience i had with this car loan and the loan amount which they had provided has been sufficient as well. The interest rate with them was around 9.25% which was nominal when compared with the market rate. The charges which they had made has been nominal as well, and even their customer support has been responsive as well.
      Was this review helpful? 1
      , bhubaneshwar
      Reviewed on Jan 17, 2019
    • SBI Car Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been taken my car loan with State bank of India, they have given me sufficient loan amount, and i am satisfied with the loan amount , and the rate of interest they have charged me up to 9.45% which is bit high compare to other bank,i have asked for 9 % but its okay, and the processing fee they have charged me was nominal,overall service is good.
      Was this review helpful? 0
      , hyderabad
      Reviewed on Jan 17, 2019
    • Kotak Car Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been taken my car loan with Kotak mahindra bank recently ,like 2 months before i took this loan, and i am happy with the loan amount they have given me ,it was sufficient for me, and the rate of interest they have charged me up to 9.3% which was nominal for me and the processing fee they have charged me was nominal, the loan amount process went smoothly. the overall service rendered by them was really good.
      Was this review helpful? 1
      , chennai
      Reviewed on Jan 17, 2019
    • Central Bank of India Car Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It was a good experience i had with this loan and the loan amount which they had provided has been sufficient. The interest rate with them is quite nominal when compared with the market rate. There has not been any sort of additional charges which they had made so far.
      Was this review helpful? 1
      , bangalore
      Reviewed on Jan 13, 2019
    • SBI Car Loan
      "Excellent"
      0.5 5.0/5 "Blown Away!"
      I took my car loan in State Bank of India by last year. The charges are normal. I have spend down payment nearly 1L out of 7L. The branch is near to my residence so will never contact the customer service. The process was immediate and it was completed within 2 days.
      Was this review helpful? 2
      , hyderabad
      Reviewed on Jan 12, 2019
    • HDFC Bank Car Loan
      "Its Excellent"
      0.5 4.5/5 "Excellent!"
      HDFC gave me the door step service for the car loan. I took the loan before three years. It was the fantastic experience for me because I got the better interest, I took the loan for 5 years but I done the foreclose in three years , there was no charges for it.
      Was this review helpful? 2
      , ahmedabad
      Reviewed on Jan 11, 2019
    • Capital First Car Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
      The process in getting my Car loan from them has been quite good and the process went smooth. The loan amount was sufficient but the interest rate with them has been quite high when compared with the market rate. Their customer support and their response has been good and has been helpful as well.
      Was this review helpful? 2
      , bangalore
      Reviewed on Jan 10, 2019
    • HDFC Bank Car Loan
      "Very Good Service"
      0.5 4.0/5 "Great!"
      My car loan experience with HDFC has been good and the loan amount which they had provided has been sufficient. The interest rate with them has been nominal and there has been some charges like processing fee. Overall their has been a help from their customer support as well.
      Was this review helpful? 1
      , pune
      Reviewed on Jan 09, 2019
    • HDFC Bank Car Loan
      "Average Loan Service"
      0.5 3.0/5 "Satisfactory"
      I have approached the bank directly for my car loan. Since I'm existing customer of HDFC for 13 years, i have chosen them. I purchased the loan amount of Rs. 2 lakhs. They have offered me a interest rate of 16% In October 2018, i have closed this loan. Total tenure period of the loan was 3 years. Car Dealer has recommended me about this loan.
      Was this review helpful? 4
      , srikakulam
      Reviewed on Jan 09, 2019
    • Magma Car Loan
      "Average service"
      0.5 1.5/5 "Bad"
      I have been using my car loan with Magma Fincorp previously, they have given me sufficient loan amount ,the rate of interest they have charged me was high,and the processing fee they have charged me was high , i was not happy with there service.
      Was this review helpful? 3
      , ghaziabad
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I have been using my car loan with HDFC bank, there service is too good, the loan amount they have given me was sufficient,the rate of interest they have given me up to 9% which is nominal for me,and the processing fee they have charged me was nominal only they have charged me up to 1% only,and still my loan is running ,there was no hidden charges they have charged apart from that,overall service is good.
      Was this review helpful? 1
      , ghaziabad
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Nice offer and nice loan"
      0.5 4.0/5 "Great!"
      I had a car loan with HDFC 1 year back. They have given me a nice offer hence i opted the loan with HDFC. I'm not sure about the partial payment and pre-closure facility. They have given me a nice interest rate according to what i want. I was taken a loan amount of Rs. 3 lakhs.
      Was this review helpful? 0
      , new delhi
      Reviewed on Jan 08, 2019
    • review Car Loan
      "Need to reduce the charges"
      0.5 3.5/5 "Pretty good"
      I have taken a car loan in Nissan Institution, it was good. I bought the car from same showroom and they have provided me a facility. The rate of interest was high. The documentation procedure was simple. I have taken the loan almost 2 years back and its still running. The loan tenure is 5 years.
      Was this review helpful? 0
      , mumbai
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Looking for less interest rate"
      0.5 4.0/5 "Great!"
      My car loan experience was good with HDFC bank, loan amount was sufficient and the rate of interest was high when compared to other banks. Customer service was good and they responded on time. The tenure period for this car loan is for 5 years.
      Was this review helpful? 1
      , new delhi
      Reviewed on Jan 08, 2019
    • ICICI Bank Car Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been holding my car loan with ICICI bank, the rate of interest they have charged me was nominal and they have charged me processing fee they have charged me which was nominal, the loan amount they have given me was sufficient according to the car price i got my loan, still this loan is running,overall service is good.
      Was this review helpful? 3
      , new delhi
      Reviewed on Jan 08, 2019
    • IOB Car Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been holding my car loan with Indian overseas bank, the loan amount they have given me was sufficient, they have charged nominal rate of interest they have charged me up to 9 % which was nominal and there is zero processing fee , so far there service is have experience was good, they have not taken any hidden charges ,there overall service is good.
      Was this review helpful? 1
      , mumbai
      Reviewed on Jan 08, 2019
    • HDFC Bank Car Loan
      "Good loan experience with HDFC"
      0.5 4.0/5 "Great!"
      My car loan running with HDFC bank, the customer service is super and the fast approval on the disbursement. They taken 15 days to deliver the car. The principal amount is Rs. 4 lakhs for the tenure of 5 years, the car model is baleno which is latest.
      Was this review helpful? 1
      , aligarh
      Reviewed on Jan 07, 2019
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