When you apply for a personal loan, you’ll need to meet certain eligibility criteria and prove to the lender that you can afford to pay back the loan. If you’re self-employed or have a limited financial history, meeting some of the asset and income criteria can be challenging, especially when it comes to producing payslips. A low-document or low-doc personal loan gives you access to funds without the usual lengthy loan application paperwork.
When you apply for a low-doc personal loan, the lender will assess your credit history and, if you’re self-employed, they’ll look at how long you’ve been in business. Depending on the lender and your circumstances, a letter from your accountant may help you get around providing conventional proof of income. Low-doc personal loans can either be secured by an asset like a car or home or be unsecured. There are plenty of low-doc loans on the market, so before you make a decision, it always pays to compare your options.
How do low-doc personal loans work?
Low-doc personal loans work the same way as more traditional personal loans. You enter into an agreement with a lender to borrow an amount of money which you pay back in monthly, fortnightly or weekly repayments. The main difference between a low-doc and a standard personal loan is the amount of documentation required to prove your income. With a low-doc loan, you don’t need to provide as much documentation and proof of income like payslips or tax returns.
From the lender’s perspective, low-doc loans are generally riskier because, in most cases, the borrower can’t prove that they’ve got a regular income. To counter the risk, the interest rates on low-doc loans may be higher than other secured or unsecured personal loans. Much like traditional personal loans, a low-doc personal loan can be secured to property or other assets like a car or jewelry or can be unsecured.
Because you usually have discretion over how the funds are used, people apply for low-doc loans for all sorts of reasons. It could be to get a business idea off the ground or to fund a big-ticket purchase like a holiday, boat or caravan. You could also use a low-doc personal loan to pay medical bills or fund small renovations.
Given that there’s usually less paperwork involved, applying for a low-doc loan is generally a relatively simple process.
How do I apply for a low-doc personal loan?
Applying for a low-doc loan is a lot less hassle than applying for a traditional personal loan. Once you’ve compared the various low-doc loans on the market and you’ve decided on a loan that suits your needs, the actual application process is quite simple.
Depending on the lender, you may need to provide some of the following information:
- If you’re self-employed, you might need to supply details such as your ABN and/or Certificate of Incorporation
- Your business activity statements for the past 12 months which have been verified by the Australian Tax Office (ATO)
- Confirm that your income has been registered for GST for at least 12 months
- Show the last two years of your full personal and/or company tax returns to prove your income
- Show profit/loss statements
- Recent bank statement detailing your savings and business transactions.
- Depending on the lender, you’ll need to provide an Australian driver’s licence or passport to verify your identity
- Lender may ask for a letter from your accountant
Because each lender has their own requirements, some lenders may simply ask you to sign a statement confirming your ability to make repayments.
While low-doc loans can be appealing given their convenience and ease, they should really only be used for people who don’t meet the eligibility criteria. For all their positives, low-doc loans do pose an extra risk for the lender, which in turn means they generally have higher fees and interest rates.
Things to consider before applying for a low-doc personal loan
Low-doc personal loans are a lot easier to apply for than traditional personal loans. This may create the impression that borrowing money is easy and you may be tempted to borrow more than you can afford to repay. You should really only apply for a low-doc loan as a last resort and, regardless of the amount you borrow, always be sure that you can pay back the loan.
When comparing types of low-doc personal loans, don’t forget you’ll have to pay interest on the amount you borrow. If your interest rate is 12 percent, for every $1 you borrow, you’ll have to pay back $1.12. It might not seem like a lot to add to one dollar, but it all adds up and compounds quickly.
Because this type of loan requires less documentation and proof of income, you may find that that low-doc personal loans don’t have as many features as other types of personal loans.
If you’re looking for a quick and easy loan, a low-doc personal loan can be a useful solution. Before you lock yourself into a low-doc loan, it’s important that you consider all your options and make sure you can afford to make the repayments. If you don’t have a stable income and you’re under financial stress, a low-doc personal loan may put you into more debt.
Not paying back your low-doc personal loan can have some serious implications and cost you extra in late payment fees. Before you decide on the amount you want to borrow, make sure you plan how you’re going to make your repayments and whether you can actually afford to pay both the principle and the interest back.
Like any other type of personal loan, pay close attention to the interest rate. When you’re comparing low-doc personal loans, look out for both the advertised rate and the comparison rate. The advertised rate is the cost of the loan without any of the fees, whereas the comparison rate includes all the additional charges and gives you a more realistic cost of borrowing the money.
Are there advantages to low-doc personal loans?
If you’re self-employed or have a limited financial history, there are some advantages to a low-doc personal loan. The main advantage is that they can be easier to apply for because you don’t need as much documentation to prove your income. Because there’s less paperwork, a lot of low-doc loans have a quicker turnaround time.
Low-doc personal loans tend to have higher interest rates and fees, making them less advantageous in certain circumstances. If you’re looking to use the loan to buy a car, you might be better off opting for a secured personal loan and taking advantage of a lower interest rate. In most cases, a low-doc personal loan will have a lower interest rate than a credit card, which makes the loan an attractive option for debt consolidation.
Before you apply for a low-doc personal loan, our online loan comparison tool will help you compare top low-doc personal loans from dozens of lenders.