Low Doc Loans – When Should You Get One?
Are you in need of a loan and you don’t want to deal with the endless list of documentation required? A low doc loan can help you get the loan that you’re after.
What Are Low Doc Loans?
Low doc loans are a loan type that is available for self-employed or small business owners who do not have the necessary documentation required to apply for a loan with traditional lenders. Rather than supplying an endless list of documentation, all you will need is a form of income declaration or reduced income. This may include an accountant’s declaration or a business accounts statement.
This will show lenders that you have income and that you will be able to pay back any loan given.
Who Can Use This Type of Loan?
There are a few reasons why people apply for low doc loans. The most common reason is not being able to provide the necessary information to lenders. Let’s see what other reasons people can apply for low doc loans:
If you’re self-employed, or a business owner; it may be harder to secure a traditional bank loan. Traditional banks have a long checklist of criteria that you must tick off. If you don’t meet these criteria; they may not be willing to approve your loan. With over 1.2 million sold traders in Australia, it is an apparent issue for all sole traders. Sole traders and business owners may not display PAYG statements, perhaps their income is fluctuating and their business statements are not as strong as you would imagine. Low doc loans bridge the gap between proof of income and loan approval. Alternative lenders such as Bad Credit Loans or Australia Lending Centre, offer a low doc loan that looks beyond the long criteria
2. Young workers
The youngsters who haven’t worked for a long time come with a history of low wages, proportional to their lack of experience. Or they may come with no history whatsoever. In either case, they aren’t likely to get loans easily as they have not yet demonstrated a consistent means of income. A low doc loan may offer a suitable solution for younger, hard-working Aussie
3. The need for privacy
This is a right for most people and you should be able to keep your income level to yourself.
4. Fresh business owners
If you have been operating your business for 6 months or so and you need the extra funds to help with business operations, a low doc business loan can help grow your business.
They Are a Good Solution When You Don’t Have Proof of Your True Income
Low doc loans are great for people who cannot demonstrate long term proof of income. Let’s say that you don’t have the updated tax returns. In this situation, should you postpone the loan? No.
If your income has increased since the previous tax return, then you won’t have problems with low doc loans. This is similar to the expenses categorized as “not real”, like depreciation, which is a large deduction. Also, you may find yourself in a company that has a structure much too complex to gather all the necessary documentation. And when we are talking about family members, your income may be distributed among those you trust.
What documents do you need for a low doc loan?
At their birth, these types of loans were accessible only from a handful of lenders who offered them at expensive rates and with limited lending criteria. Nowadays, low doc loans are more popular and available than ever. When applying for a low doc loan, lenders will typically require a minimum of 2 or more of the following documents:
- ABN (Australian Business Number) running for 12 – 24 months
- Business activity statements for the last 6 months
- Signed borrowers income declaration
- Registered for Good and Services Tax within the last 6-12 months
A low doc loan does not mean you don’t need any documentation
Low doc loans don’t mean that you don’t have to provide any documents at all. They are an alternative loan option for borrowers who do not have the necessary documentation and regular income that is required by traditional lenders. Lenders will still have certain requirements when assessing your loan application. These may include:
- Clean credit: If your credit score is filled with defaults, blackmarks and court judgments; you may not be seen as a responsible borrower. Credit repair services may help you remove these defaults and improve your credit score.
- Property valuations on home loans
- The maximum borrowing capacity of 80% of the purchase price for home loans.
What Is the Cost?
Low doc loans are riskier for lenders. When assessing a loan application, a lender will always assess whether the borrower is capable of repaying the loan. Taking on sole traders and small businesses are considered riskier. As such, a low doc loan may typically have higher interest rates than traditional bank loans. Processing fees may also be higher. When applying for a low doc loan, it is therefore important to research.
Enquire about the rates and make sure that you do not get sucked into any hidden fees or unexpected costs. At bad credit loans, we are upfront with our service. If you’re looking to secure a low doc loan, feel free to enquire online. Our loan specialists will contact you for a hassle-free assessment. Well understand your financial situation and then offer a product to suit your needs.