While loans may be seen as a debt owed by an individual, loans can also be considered a type of asset especially for the companies to which the individuals are in debt. The main types of assets that are collateralized by loans are ABS, or asset-backed securities. The Bond Market Association claims that any asset that has a revenue stream can be transformed into a marketable debt security. ABS markets include home equity loans and auto loans.

There also two specific types of loans. These are amortizing and non-amortizing loans. Amortizing loans must be paid off within a specific period of time in regular payments of interest and principal. A non-amortizing loan does not require principal payments on a specific schedule as long as the interest is regularly paid. An example of an amortizing loan is a home loan. An example of a non-amortizing loan is a credit card bill.

How does ABS Work?

Asset-backed securities are defined by the Bond Market Association as bonds or notes backed by financial assets. The loans come from the banks, credit card providers, auto finance securities and consumer finance companies. These givers of money turn the loans into “marketable securities.” So, basically, these are profitable assets for the large companies and banks that loan out money with the intention of receiving their money plus interest back from the borrower.

Home-Equity Loans

Home equity loans, are described by the Bond Market Association are the largest percentage of the asset-backed security market. There are two types of home-equity loans. These include close and home equity loans and open and home equity loans. Both of these allow homeowners to take out money against the non-mortgage value of their homes. Homeowners often use these to consolidate debts into one monthly payment.

Auto Loans

Auto loans comprise the second largest “asset class” within the ABS market. Auto loans are supported by prime loans when made to those borrowers with strong credit history. There are some auto ABS that are supported by loans to the buyer. This is an example of an amortizing asset.

There are also student loans and credit card loans to be considered. With all of these debts being taken out by individuals, there is a lot of interest to be made on the part of the big corporations.