Low Doc personal loans – Get credit with less paperwork
In terms of paperwork, standard personal loans tend to be a little uptight. That’s because lenders want to know if you have the financial skills to pay off your debt. But here’s the deal for some borrowers, especially those who are self-employed: Those updated financial statements and proof of income documents are not always available. Thankfully, low doc personal loans are still an option for some.
What are low doc personal loans?
A low doc personal loan is one that gives you some wiggle room when presenting your application documents to a lender. Generally, to be an attractive borrower, you have to show ample proof of income in the form of recent payslips. The lender will also consider your employment history to see if your income is regular and stable.
But with a low doc loan, you can skip this lengthy process since the lender uses different criteria when evaluating your ability to pay off your debt. For instance, if you’re self-employed or have wealth tied up in investments, the lender may look at how long you’ve been running your business, or they might be happy with just a letter from your accountant.
Therefore, a low doc personal loan gives you quick access to the funds you need even when you don’t have the conventional paperwork required for a standard loan application.
How do low doc personal loans work?
Low doc personal loans have most of the basic features that make up standard personal loans. For instance, loan amounts range between $2,000 and $100,000. The debt is then repaid over a fixed term of up to 7 years via monthly, fortnightly or weekly repayments. There are more shared features:
- Secured or unsecured. Offering your car or some other asset to guarantee the loan (secured personal loan) will get you a lower rate. An unsecured personal loan doesn’t need this guarantee, but you’ll need a good credit history, plus the interest rates are higher, and your borrowing capacity is limited.
- Fixed or variable rate. A fixed rate means fixed repayments and more peace of mind since you never have to pay more when rates rise. Alternatively, a variable rate generally has more flexible features, and you may save if rates drop.
- Loan purpose. Most lenders provide personal loans for all sorts of uses. So you’ll likely be able to invest the funds into your business, a holiday, wedding, car, or some other big-budget purchase.
However, low doc personal loans also differ from standard loans, mainly in the following ways:
- Interest rate and fees. Because your application still isn’t as strong, this type of loan is riskier for the lender and, therefore, pricier than its standard counterpart.
- Eligibility. You don’t need to provide as much documentation to make your case as a responsible borrower.
- Simpler application process. Less paperwork typically translates into a simpler and faster application process.
- Availability. Not all lenders offer low doc personal loans. Your best bet is with non-bank lenders since they tend to have more forgiving eligibility criteria than the bigger banks.
Who are they for?
Since they’re designed for borrowers who can’t meet the usual paperwork requirements, low doc personal loans are best for:
- Business owners and self-employed people. As a new business owner or self-employed person, it’s impossible to show several years worth of consistent earnings, so a low doc personal loan may be the only option.
- Casual workers. Casual workers usually have seasonal earnings, meaning they don’t have a stable income history. A low doc personal loan makes it possible to borrow for some.
- Young borrowers. You can get credit if you have a short income history or still in a low-income bracket (some lenders are willing to consider your earning potential).
- Other types of borrowers. This includes investors and retirees who have their wealth tied up in assets. You might also opt for this form of credit to avoid the hassle of organising paperwork, even if it costs you more.
List of documentation that may be required
When applying for a low doc personal loan, be prepared to supply the following, though this varies depending on the financial institution:
- Recent bank statements showing your business transaction history.
- A letter from your accountant declaring your income.
- At least 2 years worth of personal and/or company tax returns
- Proof of your Australian Business Number (ABN), certificate of incorporation and other company information.
- Business activity statements (BAS) going back at least 12 months and verified by the ATO.
- GST registration – 12 months worth of statements is the usual requirement
- Profit/loss statements.
- Proof of supplementary income or assets, for instance, rental property.
- Personal identification, such as an Australian driver’s licence or passport.
- If you’re applying for secured credit, you need to provide proof of ownership of the asset used as security.
How to improve your chances of approval
When it comes to qualifying for credit, it’s all about convincing the lender you’re capable of repaying your debt. There are many ways to do this, and the more boxes you tick, the stronger your application will be:
- Making a joint application. Adding another person to your application lends more weight to it. However, you both have to qualify, and you’ll both be liable to repay the debt.
- Offering security. While choosing secured credit means you might lose your asset if you default, providers are more willing to greenlight your application.
- Providing as much does documentation as possible. The more proof there is that you can afford credit, the higher your chances of approval.
- Having a stellar credit score. An excellent credit shows you have a good track record when it comes to servicing your debts.
- Having a high income and more assets. This lowers the lender’s risk since you’re less likely to run out of money for repayments.
Low doc vs no doc personal loans
So if there are low doc loans, are no doc loans also a real thing? Strictly speaking, lenders will always require some form of documentation to make sure you’re not biting off more than you can chew. A better term for both these types of products would be alt doc loans.
In simple terms, if you can’t meet the full doc personal loan requirements, the lender is willing to consider alternative documents. Otherwise, a responsible lender can’t hand out credit without some form of proof of income.
How to find the best low doc personal loan for you
When exploring loan products from different lenders, consider the following features to help you choose the best product from the lineup:
- Interest rate. You’re already looking at paying a higher interest rate than average but avoid the particularly inflated costs. The market always has competitive rates on offer if you take the time to shop around.
- Fees and charges. Make sure any competitive rate you get is coupled with affordable fees and charges. The comparison rate includes the interest rate and fees, so make a point to check it out to get the overall picture.
- Loan terms. To reduce their risk, most lenders offer shorter terms for low doc personal loans. Make sure you have enough time to repay your debt. You can also use our low doc personal loan calculator to estimate affordable monthly loan repayments.
- Repayment flexibility. Some products allow you to make extra repayments, change your repayment due date or access your extra repayments (redraw facility), which are great features if you have an inconsistent income.
Pros and cons
Let’s take a look at where low doc personal loans hit the mark:
- Faster and simpler application process. Since they don’t need as much documentation, you can sail through the process much quicker and with less hassle.
- A viable alternative to traditional personal loans. For borrowers who can’t access traditional forms of credit, low doc loans can help your plans take off the ground.
On the other hand, there are some downsides to consider:
- Higher rates and fees. Since the lender is taking on more risk (because you can’t fully prove your ability to repay), you’ll also have to take on more borrowing costs.
- They may be difficult to find. While some lenders have relaxed requirements, their low doc products still require several forms of documents. Finding a lender who, for instance, only needs a letter from your accountant is not as simple.
- They may have less flexible features. Credit score requirements will likely be higher. Additionally, you may get a shorter term and limited borrowing power.
How to apply for a low doc personal loan
If you’re planning to apply for a loan online, you can use BestFind’s comparison table above as your starting point. Simply click “Go to Site” for your preferred financial product to access the lender’s website.
Besides the list of documents mentioned in an earlier section, lenders also require that you be an Australian citizen or permanent resident who’s at least 18 years of age.
Low doc personal loans FAQ
Can I apply if I have bad credit?
Yes. However, having major dents on your credit score and not supplying the standard documentation makes qualifying more difficult. Additionally, lenders charge a premium price to high-risk borrowers, even if you opt for short term credit, which is more accessible.
Are there any alternatives?
Your first loan option should ideally be a traditional one. To qualify, you’ll need to work towards providing detailed financial records and having a lower debt-to-income ratio plus a higher credit score. While low doc personal loans are convenient, more affordable than credit cards, and worth it for some, they shouldn’t be used as a quick solution due to high costs.
Can I refinance my low doc personal loan?
Yes. You may also want to look into debt consolidation if you have other higher interest loans to get rid of.
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