Absolute Prepayment Speed (ABS)
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
Monthly prepayment convention measuring unscheduled principal as a percentage of the original pool balance; standard for auto ABS.
Absolute Prepayment Speed (ABS) in plain English
When you borrow money to buy a car, you agree to pay it back in monthly chunks — but sometimes you pay early, like if you sell the car or refinance. "Absolute Prepayment Speed" is just a standard yardstick for how fast a big bundle of car loans is being paid off ahead of schedule. It measures each month's early (unscheduled) payments as a percentage of the pool's ORIGINAL size — so a steady $1,000-per-month of early payoffs always shows the same speed, no matter how much the pool has shrunk. Investors care because the faster people prepay, the sooner they get their money back and the less interest they earn.
Also called: ABS
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Practice Absolute Prepayment Speed (ABS)
In a basic securitization, what is the main source of cash used to pay ABS investors?
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