The Lowdown
When assessing your home, personal, or business loan application, the key thing lenders look for is proof that you are going to be able to comfortably repay the loan you are applying for. Depending on whether you are wanting to secure a low doc or full-doc loan will determine how much financial information you need to provide as part of the application.
‘Low doc’ and ‘full doc’ are terms that might seem confusing at first glance, but make sense very quickly. The truth is, the meaning of low doc and full doc is just as simple as the names suggest. Low doc means loans that require less financial documentation, and full doc means loans that require comprehensive documentation.
However, there are a few other nitty gritty details to be aware of when choosing the best loan option for you. Here are 6 important differences of low doc and full-doc loans:
1. Documentation
The main difference between a low doc and full doc loan is of course the amount of documentation that is required for each loan type. This documentation is used to prove your income and the serviceability of the loan.
Low-doc loans require less financial documentation to prove your income, assets and liabilities. This loan type will typically be used by people who are self employed (sole-traders), or by small businesses and often at times the business operator don’t have all the documents required for a full doc to get a car loan, equipment loan or truck finance. Although each lender will have slightly different low doc loan requirements, the main documents you (the borrower) may need to provide are business and personal bank statements, a letter from your accountant, your ABN, GST registration, Business Activity Statements, and your tax returns if they are available.
A full-doc loan on the other hand, otherwise known as a standard-doc loan, requires comprehensive financial documentation to prove your income when applying for a loan. It is a type of mortgage where you (the borrower) must provide full documentation to validate your income, assets, and liabilities. For a full-doc loan, the documents that lenders may require you to provide include proof of income, asset verification, credit history, employment verification, and identification.
2. Eligibility
Another key difference between low doc and full doc loans is the eligibility criteria.
A low doc loan will typically be the best option for you if you’ve been in a business for less than two years, or if your income is seasonal or irregular. Low doc loans may also be recommended if your income is from combined sources, or if you have recently switched industries or employment type.
Eligibility for a full doc loan will require the borrower to have a stable, verifiable income and employment history. The benefit of qualifying for a full doc loan is that you will be able to borrow more.
3. Interest Rates and Fees
Interest rates for low doc and full doc loans are assessed based on the level of risk the borrower represents for the lender.
Due to the minimal documentation provided to the lender for low-doc loans, this loan-type will have a higher interest rate than full-doc loans because more risk is involved. Low-doc loans are also often unregulated and may culminate in you paying higher fees in addition to more interest, and lenders may also require you to take out additional lender’s mortgage insurance.
Due to the extensive documentation provided for full-doc loans, this loan type is favored by lenders because it is less risky than low-doc loans, meaning borrowers will often be able to secure lower interest rates and fees.
4. Approval Process
The fourth important difference between a low doc and full doc loan is the time it takes to be approved for each. Due to the comprehensive amount of documentation required for full doc, the approval process can be time-consuming for borrowers and take significantly longer than low doc. When considering the timeline for approval of a low-doc loan, the answer can often be ambiguous. However, at Jade Finance we can settle low doc loans on the same day, and full-doc loans within a few days to a week, depending on the lender.
5. Loan Size and Term
When borrowing money, the size and term of a loan is an important factor. For a low-doc loan, a borrower can expect to receive a smaller loan amount and shorter loan terms. This is, again, based on the risk to the lender due to minimal documentation. For a full-doc loan, a borrower will be offered much greater flexibility in the loan size and term because of the comprehensive documentation provided by the borrower.
6. Risk Assessment
As lightly touched on throughout this guide, a sixth important difference between low doc and full-doc loans is the risk assessment. Due to the requirement of less documentation for a low-doc loan, it should be unsurprising that this type of loan carries more risk. Full-doc loans on the other hand, go through a comprehensive and time-consuming process to verify a borrower’s income and ability to repay. Therefore, full-doc loans are lower risk and are able to offer better terms than low-doc loans.
Wrap-Up
To settle this guide, we have outlined six differences between low and full-doc loans which include documentation, eligibility, interest rates and fees, the approval process, loan size and term, and risk assessment. When determining which loan type to apply for, it is important to understand the differences to ensure you are getting the best financing for you and your business needs.
Compare rates and repayments for low doc car loans at JADE Finance.
Why? Jade Finance is accredited with bank and non-bank lenders that can be more flexible and offer cost-effective low-doc loans. With every application assessed individually, our lenders apply different conditions to help you get the best deal available.
Let our brokers negotiate the best interest rates and conditions for you by calling 1300 000 008 or Request a Quote.
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