Depreciation curve

The term of the loan defines the period over which the total amount of principal is repaid. Most auto and consumer loan securitisations allow loans with original terms of 60 months or less. The distribution of loans across the term spectrum is important because losses tend to increase with the term of the loan. For auto loans, this is most likely a result of a slower build up in equity with a longer amortising loan. Exhibit 14.12 shows the amortisation profile for 48-, 60-, and 72-month loans along with a depreciation curve. 

The loan-to-value ratio (LTV) represents the size of the loan relative to the sales price of the vehicle. The lower the LTV, the more equity a borrower has invested in the vehicle. The equity in the vehicle should act as an incentive to keep the borrower from defaulting, and thus losing the invested equity. Over time, the amount of the loan will decrease as principal is repaid by the borrower. However, the value of the vehicle will most likely be decreasing as well, based on the vehicle s depreciation curve. This makes it necessary to analyse the rate at which principal is being repaid (amortisation schedule) against the rate at which the vehicle is depreciating in order to determine the borrower s expected equity in the vehicle (see term distribution above). 

Demisters, purchase cost curves, 934 Density, simulating, 429. 444-445 Department of Transportation (DOT), 851. 860 Depreciating capital investments accelerated depreciation, 285 book value, 281... 

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