How does the maturity and repayment schedule of a single loan (cession) compare to asset-backed securities? This article will explain the lifecycle and benefits of asset-backed securities over single loans.
Since we transitioned from single loans to asset-backed securities, we have seen an increase in client interest in the new product. One of the most frequently asked questions is the maturity term of asset-backed securities compared to single loans.
Based on our data, we’ve created a graph illustrating the lifecycle of these investment types and what investors can reasonably expect in terms of principal repayment. Please note that the displayed repayment schedule does not include interest earnings.
Single loans may appear to have had a much shorter maturity term than securities, which currently stand at 182 days. Still, it is essential to understand that the same loans available previously are now pooled together to create asset-backed securities, which means that repayment schedules will remain similar to single loans.
Another key difference that benefits investors is that securities are still linked to the cash flow of consumer loans but are not entirely linked to their terms. It means that when a borrower repays a loan, the investor receives full repayment and interest on the underlying loan even before the security’s maturity date arrives. Moreover, even if the borrower extends the loan, the security’s final maturity cannot be extended.
Here are a few key takeaways:
- Asset-backed security repayment schedules will remain similar to single loans.
- Securities are still linked to the cash flow of consumer loans but not fully linked to their term.
- When borrower repays the loan, the investor receives full principal repayment and interest before the security’s maturity.
- A borrower may extend the loan, but the security’s final maturity cannot be extended.