What is a Low Doc Loan and How Do They Work?

Most people don’t think about low doc loans when they’re looking to borrow money. You mightn’t be sure about it or just not heard of it. Unfortunately, traditional loans aren’t always an option when you’re self-employed or run a small business. Low documentation loans, however, can be a more suitable option to consider. So, what is a low documentation loan and how do they work exactly?

Understanding the Simplicities of Low Doc Loans

A low doc loan is a type of loan that does not have the same criteria as traditional loans. You don’t require the same documentation that would be needed for other loans. For instance, you don’t have pay slips because you’re self-employed or your income has significantly increased since your last tax return. A low documentation loan allows you to get a loan without a mountain of paperwork to prove your income.

How a Low Documentation Loan Works

As said previously, when you’re self-employed or run a small business, you don’t have the traditional financial paperwork to show proof of income. Banks would often use payslips and other such things to be sure you have the means to pay the loan back. With low doc loans, that isn’t required. You show your latest tax returns, financial statements, and ABN, and go from there. This can be the ideal option for most self-employed individuals, and it is effective too.

You can apply for a loan with fewer documents, the lender will review the application and decide if you’re a good risk. Of course, each lender has criteria you must meet for your application to be approved. This will vary also. A low doc loan can be incredibly straightforward and useful for those who don’t have the typical paperwork to back their application.

Keep to One Loan at a Time

One of the biggest reasons why loan applications are rejected is because of how many loans they have applied to. For example, you apply for a low documentation loan with one lender but have also five other loan applications pending. This doesn’t show the lender you’re a good risk; most lenders will think you’re in a tricky financial state. Instead of applying for several loans at once, stick to one. This will reflect more positively on you. Low doc loans may be more flexible, but lenders need to be sure you will repay them.

Loan Rejection Can Happen if Your Credit is Poor

Let’s be honest, lenders are willing to take risks on those who have the means and track history. For instance, you have had three loans in the past ten years. All were paid back on time. That contributes to a strong credit history and a good credit score. On the other hand, you had two loans over the past eight years and have defaulted on both. That sends the wrong signals out and will likely lead to rejection. A low doc loan application can be rejected because of your poor credit. So, ensure it’s up to code.

A Good Option to Consider

Borrowing money can be incredibly tough for a host of reasons. When you are self-employed or don’t have the traditional payslips available, that could spell disaster. It is frustrating because you have a steady income and every intention to pay the loan back. Unfortunately, lenders are wary about loaning you money. That is where low documentation loans come into play. You get a simple loan that is effective and ideal for those self-employed. Low doc loans are a great option for most.