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Learn about low doc car loan options

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?

Low doc car loans let borrowers apply for car finance with less paperwork than other types of car loans - hence the name 'low documentation' loans.

For some borrowers, such as self-employed people, ABN holders, sole traders and contractors, applying for a low doc car loan is simpler than applying for a standard car loan, as they don't need to provide standard proof of income such as payslips from an employer. This allows these borrowers to buy the vehicles of their choice, subject to a lender’s approval.

You can often choose a low doc car loan with a variable or fixed interest rate, and many lenders will let you use the vehicle for personal or business purposes. While some lenders will let you repay your low doc car loan early, you may be charged an early repayment fee.

Much like with a typical car loan, it's important to consider the loan term, loan amount, monthly repayments, ongoing fees and other charges before you fill out an application form for a low doc car loan. 

Keep in mind that because most lenders in Australia consider low doc car loans to be riskier than standard car loans, your low doc car loan may have a higher interest rate and/or fees than standard car loans, potentially costing you a little more.

Why you may need 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 may be useful for borrowers who don’t meet the lending criteria for standard car loans, including self-employed borrowers or people with a poor credit history. This could include anyone from tradies to freelancers to small business owners and seasonal or casual workers.

You don’t need as many documents to apply for a low doc car loan, though you may need a letter from an accountant to support your application that confirms you’re able to make repayments.

Some car loans are only available if you're buying a new vehicle, but many lenders will let you buy a second-hand car with a low doc loan as long as it has been certified as roadworthy.

What are the benefits and risks of a low doc car loan?

  • Low doc car loans make buying a new car or used car 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 ahead of schedule.

How much documentation do you need for a low doc car loan?

Different car finance lenders will have different eligibility criteria for their low doc car loans. Some of the common documents you may need to provide include:

  • Proof of identity and residence (e.g. driver’s license, passport)
  • Details of your business and its income (e.g. ABN, financials such as bank statements and tax returns)
  • Accountant’s letter, confirming you can afford the repayments
  • Details of the car being purchased (value, registration, insurance etc.)

In some cases, you may also need to pay a deposit upfront or provide details of an asset that can be used as security on the loan.

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Is there a no doc car loan?

No doc car loans, where you can get car finance without requiring any documentation whatsoever, don’t really exist anymore in today’s market. Most responsible car finance providers will require at least some paperwork before they’ll offer a car loan to make sure you can afford the repayments and aren’t risking financial stress. 

While some lenders may offer “no doc” car loans, you’ll likely still need to require some documentation as part of the approval criteria, such as your business’ ABN. The less documentation that’s required, the higher the interest rates you may need to pay.  

What other options are available if you need a low doc car loan?

If you aren’t able to satisfy all the requirements of a low doc car loan, or you’d prefer an alternative car finance option, there are a few choices available. 

You may be able to apply for a car loan with the help of a guarantor. This is a third party, often a family member, who will guarantee your car loan with the value of equity in their own assets, and agree to take responsibility for the repayments if you’re unable to do so. A guarantor loan could allow you to borrow the money you need for a car even if you have a bad credit score. 

For vehicles for business use, you may be able to consider a commercial hire lease or a chattel mortgage, which could allow you to access vehicle finance while enjoying some tax benefits, though different terms and conditions may apply and you may not own the car at the end of the term.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.