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What is asset backed security?

Asset backed security

This is a security backed by a loan, lease, or other debt as collateral. It’s the same as a mortgage-backed security except that it's backed by other types of debt instead of mortgages.

Where have you heard about asset backed security?

One common example is car leasing loans. The companies issuing these loans sometimes sell them to investment firms, who will then organise the loans into tranches before issuing securities which can be bought by individual investors.

What you need to know about asset backed security...

Asset backed securities are a relatively new, but fast growing segment of the debt market. When you take out a loan, your debt becomes an asset on the lender's balance sheet. The lender can then pool these assets and sell them to an investment firm, which will packaging them into asset-based securities which can be sold to the public. This means the provider can remove debts from its balance sheet, as well as gaining more funds and space to take on new business.

Find out more about asset backed security...

Those investing in asset backed securities are usually institutional investors. See our guide to find out more.

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