Low Documentation (Low Doc) Loans are designed for self-employed customers and small business owners who may not have access to the financial statements and tax returns usually required when applying for a loan.These loans may be used by people who cannot prove a regular income, such as the self-employed or those whose income comes from investments.Low doc personal loans are also options for individuals which have bad or no credit ratings as banks or some lending institutions tend to heavily favour lending money only to individuals with good credit ratings.
Characteristics of Low Doc Loans
Low doc loans have quite similar features to other personal loans but comes with the benefit of having more lenient required documents. As such, this is a better option for those which do not qualify for other forms of personal loans.
• Standard application. As these loans require less documentation than others, the application process is usually the same as a regular personal loan.
• Fees and rates. As these loans require less proof of financial stability, lenders may charge higher fees and rates to offset the risk of lending the money.
• Variable or fixed. Depending on the loan you opt for you may be able to select a fixed or variable rate option to suit your financial needs.
• Flexible loan purposes. Low doc personal loans may allow you to borrow money to finance personal or business needs, making them a suitable option to consider for various types of loan requirements.
Pros and Cons of Low Doc Loans
There are merits and demerits of low doc loans. Some of the merits which come with applying for a low doc are:
• Very little documentation is needed to apply for this kind of loan compared to other standard loans. Individuals with bad credit ratings can greatly benefit from low doc loans.
• Provides an option to individuals who may not have access to traditional personal loans.
The disadvantages or demerits of the low doc loan are:
• These loans most of the time have higher interest rates compared to traditional personal loans
• These loans tend to offer less features and flexibility than other loans.
Before going to apply for a low doc loan, consider a few key aspects.
• Do you really need the loan? More times than not, these loans attract individuals for the wrong reasons. Consider if you have a reliable income or stable assets to prove to a lender that you have the ability to make the repayment and not default on your loan. Think clearly if your financial position is suitable to be taking up a loan.
• Loan planning. Most of these low doc personal loans come with higher interest in comparison to standard loans which means that more money will be needed for repayment. Loan planning is important and one should carefully evaluate if the loan will be able to fit into one’s current budget to avoid falling into debt.
In conclusion, if you have a good investment opportunity and do not have the means to obtain a standard personal loan, a low doc loan can be a boost to get you through without turning to illegal methods.