Prepayment
Asset-Backed Securities glossary · Collateral & Cash Flow Modeling
Definition
Principal payment in excess of scheduled amortization.
Prepayment in plain English
When you have a loan, you owe a scheduled monthly amount. A prepayment is any principal (the borrowed amount itself, not interest) you pay ABOVE that schedule — like sending extra to knock down your car loan faster, or paying the whole thing off when you sell the car. It matters a lot to investors who bought a bundle of these loans: prepayments hand their money back sooner than planned, which can be good or annoying depending on what they were counting on. In short, it's the borrower saying 'here, take my debt off the books early.'
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