Definition
Accelerated payment
Accelerated payment occurs when a borrower speeds up the repayment of a loan. This can be done by:
- Shortening the amortization period, which increases the amount of each regular payment
- Making payments more frequently—for example, weekly or bi-weekly instead of once a month
- Making extra lump-sum payments at scheduled intervals
Accelerated payments reduce the borrower’s interest costs (the total fee paid to the lender for the loan). This can benefit a business but depends on a reliable cash flow. Before committing to an accelerated payment schedule, it is good practice for companies to ask if they can switch back to a slower repayment schedule should their cash flow change.
More about accelerated payment
In most loans, part of the monthly payment is principal and part of the loan is interest. In the case of demand loans additional lump-sum payments can typically be made at the discretion of the borrower without issue. This basically means most loans have an “accelerated payment” option built in.