Not sure about low doc loans? Think there aren’t many differences between full-doc and low-doc-loan? Well, that’s not quite accurate. Full-documentation and low documentation loans are vastly different and can be hugely important for applicants around the country. So, what are the differences between low doc and full-doc loans and how can they help you? 

Understanding the Differences Between Full-doc and Low-Doc-Loans

While loan criteria differ from individual lenders, there is one glaring difference between a full-doc loan and low doc loan. Typically, the amount of documentation required for a full-documentation loan is extensive compared to a low documentation loan. For example, every loan applicant must provide identification. However, a low documentation loan would require far fewer documents to verify income. 

Low Documentation Loans would be a popular choice for small business owners and self-employed individuals. It often would entail a high rate of interest compared to some traditional loans. Of course, interest rates depend on several factors.

Self-Verification with Low Documentation Loans 

Full-doc loan lenders will often conduct a thorough financial check – as they must be sure you can repay the loan – which covers all forms of income. This does not happen with a low doc loan. Instead, loan applicants go through a self-verification process to confirm income. Typically, this comes in the form of a Borrower’s Income Declaration. You will also need to provide a few other pieces of documentation, including: 

  • BAS – Business Activity Statements 
  • Personal Tax Returns 
  • Your ABN – Australian Business Number  
  • A Business Bank Statement 

Low-doc-loans have become a valuable source for many throughout the country. It was, however, created for self-employed and small business owners as traditional loans tend to be unavailable.  

The Additional Differences Between Full-Doc and Low Doc Loans 

Typically, you face higher interest rates with a low doc loan compared to a full-doc loan. It is because you have self-verified your income and provided fewer supporting documents. Lenders are taking greater risks for small business owners and those self-employed. It might seem unfair but lenders want to reduce the risk on their part.  

Also, if you wish to obtain a low doc home loan, you will need a substantial deposit. For instance, a 20 or even 40% deposit would be required. It again reduces the risk to the lender. Some lenders have restrictions on location; that’s why Low Documentation Loans are quite different from full-doc loans. Both loans have their advantages and can be useful in so many ways.  

Low Documentation Loans are Valuable Resources  

Whether you loathe or love low documentation loans, they remain a valuable asset to those who are self-employed or run a small business. Traditional and full-doc loans are not always an option when you don’t have a regular pay check or salary. That doesn’t mean you can’t afford to repay the loan, but of course, it is a risk on the part of the lender. Fortunately, low documentation loans provide a viable option to consider. Low doc loans require fewer documents to support your application compared to full-doc and traditional bank loans.  Read here.