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Low doc car loans are available if you’re self-employed or work as a contractor or freelancer and don’t have a regular income. They are ideal for borrowers who do not meet traditional lending criteria.
What is a low doc car loan?
Most Australian car loan applications require a lot of paperwork to prove you can afford repayments.
But what if you don't receive regular payslips from an employer?
Low doc car loans are useful as they are offered to borrowers who don’t meet the standard lending criteria including the self-employed or people with a poor credit history.
You don’t need as many documents to apply for a loan, though you may need a letter from an accountant to support your application and ability to make repayments.
Why do people use low doc car loans?
For some borrowers, applying for a low doc car loan is simpler than applying for a standard car loan. This means self-employed borrowers can buy the vehicles of their choice, subject to a lender’s approval.
Some car loans are only available if you're buying a new vehicle, but many lenders will let you buy a second-hand car as long as it has been certified as roadworthy.
What are the main features of low doc car loans?
Low doc car loans let borrowers apply with less paperwork than other types of car loans, though they typically have higher interest rates than regular car loans. They may be secured by the value of your car or some other asset, such as equity in your home.
You can often choose a variable or fixed interest rate car loan and most lenders will let you use the vehicle for both personal and business purposes. While some lenders will let you repay your low doc car loan early, you may be charged an early repayment fee.
What are the pros and cons of low doc car loans?
- Low doc car loans make buying a vehicle easier for borrowers who don't receive regular income from an employer.
- Applying for a low doc car loan can involve less hassle, as you don’t need to provide as much paperwork to prove your income. Some lenders simply ask borrowers to sign a statement confirming their ability to make repayments.
- As a low doc car loan means an increased level of risk for the lender, you may be charged a higher interest rate compared to a regular car loan, so make sure you can afford the repayments.
- There may also be early repayment fees if you repay your loan early.
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A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.
Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.
Some companies will advertise no credit check car loans, however under the Australian National Consumer Credit Protection act, credit checks are required by all responsible lenders, so such lenders are likely to have high interest rates. Depending on your income and credit history, you may qualify for a low interest StepUP loan from Good Shepherd Microfinance.
You might be better off finding a specialist lender who will look at your credit history and income, who will decide whether or not you are able to responsibility pay back the loan. Alternatively, you could contact a car finance broker.
You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.
Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.
That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.
One thing to bear in mind is that lenders who offer no credit check car loans are likely to charge higher interest rates and higher fees than on car loans that include a credit check. Also, lenders who no credit check car loans might expect you to pay a higher deposit. You might also be expected to provide security.
Lenders regard no credit check car loans as riskier than other car loans, which is why it’s a niche product that often features special conditions.
Even if you have bad credit or no credit history there are loans that are available to you through specialised lenders. Some lenders in Australia advertise car loan offers without running credit checks, however, the Australian National Consumer Credit Protection act requires lenders to loan money responsibly, so credit checks are normally required by all responsible lenders.