What Is a Low Doc Car Loan?
What Is a Low Doc Car Loan? A Guide for Buyers
A car purchase can be a considerable dollar commitment for many people, and many buyers depend on car loans to bring the purchase home. The problem is, though, traditional car loans often require a lot of complex paperwork such as tax returns, bank statements, and proof of income, which the self‐employed, freelancers, or those who have trouble gathering financial info have a hard time providing. That brings low doc car loan like.
In simple terms, a low doc (low documentation) car loan will be something that has so little paperwork and documentation required for a regular car loan. They are loans to those who don’t have all that normal proof of income available, and can make the repayments. In this blog, we will find out what is low doc car loans, who they are for and what to note when considering one.
Check out our blog post on Top Tips to Get a Car Loan
What Is a Low Doc Car Loan?
A low doc car loan is a type of vehicle loan which has been tailored specifically with the intention of lending to people who would struggle to provide the extensive documentation conventionally required of people wanting a vehicle loan. This type of loan is popular among:
- Self-employed individuals
- Small business owners
- Freelancers
- Contractors
- Investors with variable income
These people tend to love low doc loans because they don’t have pay slips or financial records like a traditional lender would need. For instance, applicants are not required to produce tax returns, payslips, instead they need to produce alternative proof of income, for example a statement of income, bank statements and/or business activity statements (BAS) to consider their application.
Low Doc Car Loans – the Features
While low doc car loans provide flexibility with documentation requirements, they also come with specific features and conditions to be aware of:
- Less Documentation: I called it so, as you will be needing fewer documents for the application. A lender will typically only ask to see evidence of income from a BAS or accountants statement.
- Higher Interest Rates: Similar to high risk personal loans, low doc car loans are high risk for lenders because you’re not earning as much, so you’ll get higher interest rates than normal car loans.
- Shorter Loan Terms: Low doc car loans may feature shorter car loan terms in order to decrease the risk. This means that they will pay off the loan sooner, but also will have higher monthly payments.
- Deposit Requirements: Some lenders can ask for higher deposit on low doc car loan and it can sometimes skip from 20% up to 40%. This deposit can be used by the lender as his security.
- Vehicle as Security: In some cases the car purchased serves as collateral for this loan so if the borrower default, the lender can repossess the car.
When It Comes to Low Doc Car Loan Who Can Get?
What is a low doc car loan? Low doc car loan is there to cater for those who can’t afford to have income verification statement as others can have but need to be facilitated for the financing of a vehicle. Typical candidates for a low doc car loan include:
- For those who are self employed or business owners and don’t have regular pay slips.
- Are those people who may not have a regular income making from month to month – freelancers and contractors.
- Why are they crucial to start up business owners that don’t have a lengthy trading history or huge financial documentation?
- For investors with complicated or variable income streams.
What documents do you might you require for a Low Doc Car Laon?
In almost all situations, the lenders will require a borrower to prove to them that the applicant can repay the loan using alternative forms of confirmation. This could include:
- BAS (Business activity statements).
- Bank statements
- A letter for an accountant to confirm income
- A formal proof of ABN (Australian Business Number).
- If applicable to the enterprise, evidence of GST registration can be demanded.
- Read about some Pros and Cons of Low Doc car loans.
Pros & Cons for a Low Doc Car Laon
As with any financial product, there are pluses and minuses of getting a low doc car loan. By knowing these pros and cons you can figure out if this is something that is right for you.
Pros:
Flexibility: If you’re looking for a low doc loan, then you don’t receive any standard financial documents such as payslips or tax returns.
Faster Approval: Because they need fewer documents, they might be approved speedier than with a conventional loan.
Suitable for Self-Employed: It can be easy to obtain low doc loans for the self employed and people with irregular income but can repay a loan.
Cons:
Higher Interest Rates: Because there is less documentation involved with these loans, the risk is higher and that makes the lenders charge a higher interest rate for low doc loans.
Higher Deposit: But not to worry though, few lenders could want bigger upfront payment as purchase price of car.
Limited Loan Amount: The amount which can be borrowed with the low doc car loans varies according to the applicant’s financial circumstances.
How to get a Low Doc Car Loan
What most people would like to know is a simple idea of how to get into a low doc car loan.
The process of applying for a low doc car loan is no more complicated than applying for a standard car loan just with a couple of different pieces of documentation you have to produce. Here’s a step-by-step guide:
- Research Lenders: Low doc loans are available from not all lenders so do your market research and select a lender that advances in such loans for borrowers who lack supporting documentation.
- Prepare Documentation: You can get away with only a few documents if you are going with low doc loans, although there will be a need to prove how much income you have, or whatever it means to you financially. BAS statements, bank account statements, or an accountant’s declaration, for example.
- Submit an Application: After selecting a lender and provided with the right documents, fill out your application. The license for online applications offered by the lenders can make the process very easy for the lenders.
- Get Pre-Approval: Other lenders do offer pre approval – you get to know in advance how the loan terms and what the budget will be before you even start to look for a car.
- Select Your Car: Once it’s approved, you’ll be able to start shopping for a car that falls in your loan amount. The car you buy may depend on age or value at the lender’s discretion.
Conclusion:
If you’re looking for a Low Doc Car Loan then you need to know that not all lenders offer this type of facility.
A low doc car loan would be your best bet if you’re self employed, a freelancer or run a small business and don’t have access to traditional financial docs. Then you have to look at the pros against the cons of a higher interest rates and deposits. It can help you get you to get a car when you can’t fulfill a car loan documentation requirements of a traditional car loan.
How to Obtain a Car Loan from Our Finance Partner: A Step-by-Step Guide
