Top Low Doc Loans Myths Busted
We’re all victims of the misinformation of the information age. With so many sources to check and with so many messages becoming global, what information we can trust, and which we can’t. Low doc loans are typically mythicised on the Internet. It’s easy to start believing alleged facts about them when most information out there is wrong. Let’s cover some of the most common low doc loans myths that people throw around:
Low Doc Loans are Dead
Let’s start with this one. Some Australians believe that the Global Financial Crisis (GFC) destroyed these types of loans. This stems from the fact that pre-GFC low doc loans were almost the same price as ‘full doc’ loans. Indeed, the gap is bigger. But the case is that Australia has many self-employed individuals who need these loans. While this remains true, low doc loans still exist.
Low Doc Loans are more Expensive than Traditional Loans
This isn’t always the case, although it is more common. It all boils down to the individual circumstances of the applicants. Under some low doc credit policies, these services have the same interest and fees of traditional loans. The main difference between one and another is that low doc loans require fewer documents to obtain approval. Bear in mind that the ‘best’ interest rate isn’t equal to the ‘best’ loan when it comes to low doc loans. It’s common for first-time borrowers to think so. In truth, what often matters the most is the annual percentage rate (APR), as it includes the often-overlooked fees involved. Finally, fixed-rate loans can cost more (or less) than adjustable rate. It’s hard for casual borrowers to grasp the theory behind it. To keep it short, fixed-rate loans are cheaper when adjustable rates don’t go below it, and the opposite applies.
Low Doc Loans Don’t Require Financial Paperwork
Yes, ‘low doc’ stands for fewer documents. But don’t read that as if it said you don’t need financial documents. The NCCP (National Consumer Credit Protection Act) requires that lenders take more steps to verify your financial position, given that low doc loans were abused by banks, brokers, and borrowers. When applying for a low doc loan, you’ll have to complete an application form, as well as disclosing your assets and liabilities. You will also have to provide evidence of any rental income you receive along with a recent credit account statement that confirms you’re managing your existing obligations. If you have your own business, you will require your Australian Business Number (ABN) and Business Activity Statement from the past year (BAS). Generally, the more documentation you provide, the better.
Low Doc Loans are Limited to Lower Amounts
Not true. It will be hard to get above $1 million with next-to-no documentation. If you provide sufficient evidence, you could get up to $2.5 million! Several lenders cap at $1 million, but there are still quite a few lenders that go beyond it. Often with a lower loan to value rate.
Self-employed People are Limited to Low Doc Loans
If you have an established business with a reliable (and provable) stream of income, you could opt for a standard or ‘full doc’ loan. Lenders will try to verify your income with your last years of tax returns, bank statements, and BAS. Depending on your lender, 6 months could be enough to count as established.
Only the Largest Banks offer the best Low Doc Loans
It’d be simplistic to dismiss all lenders with such a statement. Australia’s biggest banks such as CommBank, Westpac, ANZ, and NAB may dominate the financial market. That doesn’t translate to the best loans. When hunting for your desired loan, compare the interest rates, fees, and features of a wider assortment of institutions to get a brighter picture of things. In the same vein, having an account in a bank doesn’t turn it into your best choice. Nor does being a customer for decades. The loan market is competitive, and your ‘best loan’ is almost bound to be outside of your comfort zone.
Brokers don’t like Low Doc Borrowers
Some brokers believe that low doc loans are used by dodgy borrowers. The reputation of these loans has deteriorated since the GFC. The fact is that this sentiment is more of a misconception than reality. Lenders employ a variety of income verification tools to make the market safer. If financial institutions thought beforehand that no one was going to pay, they wouldn’t use so many resources to offer them.
The GFC warped many financial notions. And we’re still living its effects. Despite this, don’t let uninformed individuals sell you a fake image of the reality. Low doc loans are alive and fair. You just need to get your information straight and your documentation in check. We always recommend others to get in touch with finance professionals before making big moves. It’s best if you clear out your doubts while you still haven’t compromised anything!