Auto Loan ABS and Credit Card Receivable ABS

Auto Loan ABS and Credit Card Receivable ABS

	Auto Loan ABS	Credit Card Receivable ABS
Collateral	The collateral structure for ABS backed by amortizing assets (e.g. auto loans) generally does NOT change once the security is issued. The collateral simply gets smaller as the loans are paid off by the borrower.	The collateral structure for ABS backed by nonamortizing assets (e.g. credit card receivables) does change during the lockout period. During the lockout period, principal payments on the collateral are used to purchase additional collateral assets. (revolving structure) A call provision, which causes cash flows to be directed at principal reduction rather than purchasing new collateral assets, is usually included. (e.g.) Cleanup call, which is triggered by a decline in the value of the collateral.
Credit Enhancement
Prepayment Risk	Interest rate movements (up or down) are unlikely to have a significant effect on the prepayment rate of the auto loan ABS. Borrowers who take out an auto loan generally do not refinance their vehicles as interest rate decline. Because auto loans are short-term loans and the underlying asset (the automobile) has a tendency to rapidly depreciate in the early years, there is little incentive for borrowers to repay the loan even if interest rates decline.	During the lockout period, any principal (pre)payments are used to purchase additional collateral for the ABS. Thus, any changes in prepayment rates induced by interest rate changes would be offset by additional purchases of collateral. A contraction, or extention would be unlikely to occur.