Auto Loan ABS and Credit Card Receivable ABS

Auto Loan ABS and Credit Card Receivable ABS

	Auto Loan ABS	Credit Card Receivable ABS
ABS backed by	Amortizing assets (auto loan)	Nonamorzing assets (credit card receivable)
Collateral structure	Generally does NOT change once the security is issued. (*1)	Change during the lockout period. ("revolving structure") (*2)
Call provision (*3)		Usually included.
Prepayment rate of the ABS when interest rates ↑ or ↓	NOT significantly affected (*4)	NOT significantly affected (*5)

(*1) The collateral simply gets smaller as the loans are paid off by the borrower.

(*2) During the lockout period, principal payments on the collateral are used to purchase additional assets.

(*3) A call provision causes cash flows to be directed at principal reduction, rather than purchasing new collateral assets.
(e.g.) cleanup call : it is triggered by a decline in the value of the collateral.

(*4) Because autoloans 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 prepay the loan even if interest rates decline. Borrowers who take out an auto loan generally do not refinance their vehicles as interest rates decline.

(*5) During the lockout period, any principal payments (and prepayments) are used to purchase additional collateral for the ABS. Thus, any change in prepayment rates induced by interest rate changes would be offset by additional purchases of collateral. A contraction, or extension, would be unlikely to occur.