Lending institutions usually have a thorough and stringent set of requirements to be met in order for a person to be eligible for a loan. These loans also require the filling and filing of extensive amounts of paperwork and documentation supporting the applicants claim. But what of those citizens who don’t meet the established requirements? To help them in achieving the financial requirement they have, they can avail the assistance of a low doc loan.
A Low-doc loan is also known as a “Low Documentation” loan, referring to a particular finance scheme which is usually offered by select lending institutions to customers who are not eligible for normal loans or wish to safeguard their financial privacy. These loans are usually opted for by people who cannot meet the documentation requirements like for example; unemployed, self-employed, immigrants and seasonal workers who cannot meet the strict paperwork requirements set forth by lending institutions to qualify for loans. A low doc loan requires just a little to no documentation for the applicant to qualify, but these loans usually come with much higher rates of interest.
Low doc loans have found increasing popularity over time and research indicates that these loans make up approximately 5% of bank assets in Australia. Initially the interest rates on these loans were rather high, but now most institutions offering these loans tend to offer competitive rates of interest. Because of this and the following features, low doc loans are becoming the choice finance scheme for many:
- Low doc loans do not need any proof of income like pay slips or tax returns
- Low doc loans need a self-certified declaration confirming repayment of the loan
- Low doc loans draw the self employed individuals who reinvest their profits back into their business
- Low doc loans are useful for business owners who cannot show a large amount of expenses which have been written off
- Low doc loans can also come in handy for people who’ve gotten late in filing their taxes
The above might make low doc loans look like a risk-free revenue source but those applying for a low-doc loan will still have to fulfill these conditions:
- The applicant must self-certify his/her income
- The applicant must prove their self-employment status with either an accountant’s letter or a registered Australia Business Number
- The applicant’s credit history must be clean and show a consistent and timely payment record in case of any existing or previous loans in their name
Quite a large number of people are unaware of how to go about applying for low doc loans, but before applying for such a finance scheme, it is important also to know why a low doc loan may be denied:
- If the applicant’s Business Activity Statements are not updated
- If the applicant is a sole trader without a Goods & Service Tax registration
- If the applicant applies for a loan amount which is greater than 60% of his / her property
Applying for a low doc loan is an effective method to help out entrepreneurs in Australia who, due to specific circumstances, cannot furnish the prerequisites set by most of the banking institutions, despite having the avenues to complete repayment effectively.