Auto loan-backed securities (albs), Financial Management

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The issuers of ALBS are the financial subsidiaries of automobile manufacturers, commercial banks and other independent finance companies and small financial institutions specializing in auto loans. The period of loan typically varies from 3 years to 6 years.

Cash Flows and Prepayments

The cash flow for auto loans includes interest payment, principal repayment payable at regular intervals and any prepayments. Prepayments may be due to:

  1. Re-acquisition followed by resale of the automobile

  2. Loss or destruction of the vehicle

  3. An attempt to save interest cost

  4. An attempt to refinance the loan at a lower interest cost.

Prepayment due to re-acquisition followed by resale of the automobile depends on the prevailing economic conditions. During economic recession, prepayments tend to increase. Prepayment due to refinancing is not common in automobile loans. The speed at which prepayments are made in ALBS is measured in terms of the Absolute Prepayment Speed (APS).

Payment Structure

The structure of auto loan backed deals can be either of pass-through or pay-through type.


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