Low Doc Car Loans

Accessing business vehicle finance can be more challenging than you expect. This goes doubly so for self-employed individuals or for smaller businesses without traditional bank documentation. To get around this, many Australians take advantage of low documentation car loans, also known as low doc car loans. These alternative loans are a great flexible car financing tool.

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    What is a low doc car loan?

    These loans are a subcategory of business vehicle loans. They are specifically designed for self-employed people, start-up entrepreneurs, and other businesses who don’t have a traditional income structure. A low doc car loan can work for both new and used vehicles. Better yet, they can even be used for caravan financing or truck financing if the vehicle is used for business purposes.

    The distinct aspect of these loans is their looser and more flexible requirements for the type of documentation required for the application. A low doc car loan isn’t handed out to just anybody—you will still need to present documentation of business activity, assets, and debts. However, the lender will be more amenable to the type of nontraditional earnings that a freelancer, sole trader, or contractor might bring in.

    What to consider when comparing low doc car loans

    Low doc loans usually have fewer features than other loan types, but this varies widely by lender. It’s important to have a loan that fits your business needs. These are some of the things to pay attention to:

    • Fees

      Watch out for any upfront fees that you have to pay towards the applications, as well as ongoing fees throughout the entire life of the loan.

    • Interest rates

      Since a low doc car loan is considered riskier, it will tend to have higher interest rates. Double-check if it is fixed or variable and how long it lasts.

    • Features

      See if the loan allows you to set your own repayment schedule and whether you can make additional payments and then use a redraw facility.

    • Loan term

      Car loans usually last between one and seven years, and the term will affect the size of each monthly payment as well as the total amount of interest.

    • Restrictions

      Some lenders may restrict what the money can specifically be spent on, e.g solely the vehicle itself and not insurance or maintenance.

    Pros and cons of low doc car loans

    Prior to making a commitment to a lender, you should have a familiar understanding of both the advantages and disadvantages of low doc car loans:

    Benefits of low doc car loans

    • Quicker and simpler application process
    • Flexibility for self-employed applicants
    • Business tax benefits and GST exemptions
    • Wide variety of eligible business vehicles

    Drawbacks of low doc car loans

    • Generally higher interest rates due to more risk
    • Restrictions on loan usage and features
    • Less availability in the financing marketplace
    • Minimal applicability for personal vehicles

    What are the qualification requirements for low doc car loans?

    Low doc car loans are not available to every Australian, and there are certain eligibility criteria. You are more likely to qualify for a low doc car loan if you:

    • Hold Australian citizenship, permanent residency, or an applicable visa
    • Have had your ABN for at least two years
    • Have registered for the GST
    • Can back the loan with real estate, commercial property, or cash
    • Have a strong and stable credit history

    How do I apply for a low doc car loan?

    Though you may not need quite as much documentation as a traditional car loan would require, your lender will still want to see evidence that you are reliable.

    Specific requirements vary by lender and by customer, but you should be ready to provide some or all of these documents:

    • Business income details (e.g bank statements, tax returns)

    • Trust deeds or partnership agreements if applicable

    • Endorsement from accountant confirming ability to afford payments

    Every lender will also want to see the following basic details:

    • Proof of identity and residence (e.g driver’s licence, passport, visa)

    • Details of the vehicle being purchased (value, registration, insurance)

    • Application and privacy consent forms

    What other options do I have beyond low doc car loans?

    If a low doc car loan doesn’t feel like the right fit for you, there are several other ways to receive business vehicle financing.

    • Conventional lease

      Under this arrangement, your business uses the car while the lender still formally owns the car. At the end of the term, you can buy the car out-right or trade in for another model.

    • Novated lease

      This is a tax-savvy way to provide company vehicles to employees. A novated lease means the company makes vehicle payments out of the employee’s pre-tax salary.

    • Chattel mortgage

      This finance type works like a secured vehicle loan (where the car itself serves as collateral), but a chattel mortgage is specifically dedicated for business vehicle purchases.

    • Hire purchase

      Also known as a rent-to-own payment structure, a hire purchase lets you pay instalments toward a business vehicle. Your company receives full ownership after the last payment.

    Low doc car loan FAQ

    Can low doc car loans be used for personal vehicles?
    No. A low doc car loan exists as a commercial finance tool for businesses and self-employed workers needing a vehicle for business use.
    Can I get a used car with a low doc car loan?
    Yes. These loans are not restricted to new cars. Many lenders will offer secured loans for vehicles up to 20 years old, but you may be paying a higher interest rate.
    Do low doc car loans require a deposit?
    No. However, a deposit is still helpful because it reduces the amount of money you have to borrow, thus lowering the total interest you’ll pay back to the lender.
    Is a balloon payment a good idea for a low doc car loan?
    Sometimes. A balloon payment is a large sum paid at the very end of the loan term. This reduces the size of each instalment payment. However, it means your remaining outstanding loan value will be higher for a long time, which can increase your interest.
    Can you get a low doc car loan without proof of income?
    Low doc car loans are designed for applicants without conventional paystubs, but lenders will still need proof of financial solvency. If no proof of income is required, the lender will ask for assets, debts, or even a BAS.

    Main advice for low doc car loans

    Small businesses and self-employed individuals have long had a difficult time being approved for business vehicle financing, and low doc car loans can often be the answer. However, these loans are not necessarily easier to obtain, and they may be more expensive than regular loan types. Learning about low doc car loans will help you decide if they are the right financing tool for your business vehicle requirements.