Low doc loans – the who, the what and the why?

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A Low Doc loan (or Self Dec loan) is a well understood term to many self-employed borrowers. They have become synonymous with helping self-employed borrowers seek finance without having to provide the traditional income documents, such as financial statements and income tax returns.

Low Doc loans are only available on “non-coded” loans, purchases that are used predominantly for business purposes. Non-coded loans require less stringent income checks as they are not regulated by the NCCP Act 2009.

So, who would a Low Doc Loan be suitable for, what is their purpose and why would you use a Low Doc loan?

Who are they suitable for?

Low Doc loans have been around for an exceptionally long time, in different forms. In the early 2000’s Low Doc loans were available for many forms of lending – ranging from home loans to car loans, from self-employed to PAYG Applicants. But in recent times, since the GFC and the subsequent inception of the NCCP Act 2009 (NCCP), Lenders and Regulators have toughened their stance in relation to who should qualify for a Low Doc loan.

Low Doc loans or Low Documentation loans were originally designed for the self employed, business owner who were unable to provide their full income tax documents to prove their income to service a loan. The policy was then extended further in a bid by Lenders to buy more business. And although the policy in Australia was well controlled, over in the USA the lack of transparency in No Doc loans (or Ninja Loans) contributed towards the Global Financial Crisis and the near failure of the financial markets.

Nowadays and since the inception of the NCCP, Low Doc policy has been reigned in (and rightly so) and is strictly for self-employed borrowers. To qualify you must meet a Lenders minimum criterion which varies lender to lender. In principle however, they have similar policy – including the requirement to have an ABN, previous good credit history, property ownership and/or a deposit.

What is the purpose?

Low Doc loans are generally not priced much differently to Fully Verified (Full Doc) loans. Their purpose is to provide a more streamlined application process for the self-employed. The loan itself is a traditional loan, such as a Chattel Mortgage or Lease; it is simply the income verification that differentiates it. Low doc loans are great for your business if you are looking to purchase an asset without having to provide income tax returns and financial statements. You simply disclose your income, and the Lender uses that income figure for servicing purposes. It can be helpful if you require a piece of equipment or asset for your business, urgently. There are no delays in waiting for your accountant to send through the information.

Some Lenders require partial verification of income under their Low Doc policy – such as the latest BAS Statement, 3 months business bank statements and/or the BAS Integrated Account Ledger. Others require no documentation at all.

Why use a Low Doc loan?

Low Doc loans are a great option for self-employed borrowers who would prefer not to provide their financial statements, to speed up the lender assessment process. If you are waiting on your accountant to prepare them, finalise them or send them; it can often delay the process by days. And when you need a piece of equipment for your business, time is money.

If your overall profile is strong enough the Lender will make the assessment process much easier. And given the assets are used predominantly for business use, lenders are not required to perform Responsible Lending checks which should also help with a smoothe process.

What other checks are performed?

Normal lender checks are still conducted, such as credit checks and asset verification.

What if you have poor credit?

If you have had previous credit problems, Low Doc loans can be a little harder to get. It will depend on the severity of the issues you have had and your current profile. Lenders have the option available, however further verification of income may be required – such as BAS statements or recent bank statements to ensure your business is in good condition. And there could also be a margin applied to the interest rate.

It is important that you maintain your payments on current loans, and the ATO if you are considering Low Doc. Any missed payments (especially recent ones) can be a signal to the Lender that you are under financial distress. If this is the case, Lenders would be reluctant to approve a loan under Low Doc Policy. They would require confirmation of your income via traditional means, such as tax returns and financial statements.

The yesapproved.com.au team can help you with your situation and will work with you to ensure a suitable outcome.

Do all Lenders have Low Doc Options available?

Not every lender does have a low doc option, but most of lenders on the yesapproved.com.au panel, do have them. We ensure our lender panel is diverse and cover as many of our customer’s needs as possible.

What type of assets can be purchased?

Most asset classes are available including yellow goods, motor vehicles, utes, business equipment and caravans.

If you have any questions about Low Doc loans contact the yesapproved.com.au team by clicking below.

The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.

Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs.

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