What type of personal loan can you get if you’re self-employed?
One of the most common mistakes among people looking for a personal loan is focusing only on the interest rate first. A better question to ask initially is, ‘which kind of loan can I actually get?’
If you’re self-employed or have an irregular income, the answer may be a low doc personal loan, and NOT a standard personal loan.
In this guide, we’ll explain how low doc personal loans work and who they’re designed for. Then, we’ll explore the fundamentals that you’ll need as well as how to find the best deal.
What are low doc personal loans?
A low doc or ‘low documentation’ personal loan is a type of loan designed for borrowers who don’t meet the standard eligibility criteria for applying for credit with a lender.
With a standard personal loan, the lender will ask for financial documents, including payslips, bank statements and recent tax returns.
Low doc personal loan applications don’t require these documents. Instead, the lender assesses your eligibility in other ways, such as based on whether you have any assets for a secured low doc loan (i.e. a home or car). They’ll also review your credit history.
This makes low doc loans popular with self-employed workers, new business owners and seasonal employees.
Here are the main nuts and bolts of a low doc personal loan:
- Interest rates that range from 6.00% p.a. to 30.00% p.a.
- Loan amounts from $2,000 to $50,000
- Establishment fees ranging from $200-$500 (depending on loan size and if it's secured or not)
- Monthly fees from $0 to $15
- Loan terms from one to seven years
- Early exit fees from $0 to $500
What can you get a low doc personal loan for?
Like standard personal loans, you usually have flexibility to use a self-employed personal loan for more or less any purpose.
According to Money.com.au research, debt consolidation and financing a home renovation were the most common reasons borrowers requested a low doc personal loan. Other popular reasons included medical loans, financing a holiday and paying for a wedding.
If you’re looking for car finance, you could consider a low doc car loan. Or, if the loan is for a business purpose, there are low doc business loans.
How to apply for a self-employed personal loan
Qualifying for a low doc personal loan can be quite simple. The basic eligibility for low-doc applications requires you to be over the age of 18 and an Australian citizen or permanent resident.
Then, you’ll need to demonstrate that you can afford the repayments, which can be done by providing:
- Two years of tax returns and/or notices of tax assessment from the Australian Taxation Office (ATO) if you have them.
- Company information if you are a business owner. That includes your ABN and business address (with some lenders you must have held the ABN for a minimum of one or two years).
- Any recent financial statements that show your business’s profits and losses.
- Proof of any other income you have — i.e. rental property or investment income.
- Recent bank statements for both your personal and business accounts.
The more documentation you can provide to prove you can comfortably afford to repay the personal loan, the more likely you’ll get approved.
You may also secure a better interest rate. Having a good credit score will also be an advantage.
Which lenders offer low doc personal loans?
Low doc personal loan providers in Australia
- ANZ
- Bankwest
- Bank of Melbourne
- BankSA
- BCU
- Citi
- CommBank
- Gateway Bank
- IMB
- Latitude Financial
- Liberty
- MoneyMe
- NAB
- Our Money Market
- Pepper Money
- Plenti
- RACQ
- RACV
- SocietyOne
- St. George
- Westpac
- Sunshine Loans
- Nimble
Low doc personal loans & increased risk
Low doc personal loans offer an option to borrowers who otherwise mightn’t be able to get a loan. But something to keep in mind is that they are generally a bigger risk for the lender, because the borrower isn’t providing the standard proof of their ability to repay the loan.
This means they often have:
- Higher interest rates
- Higher fees
- Lower borrowing amounts
For example, data from Money.com.au shows that the average personal loan interest rate borrowers who are casually employed, without a long-term stable income, is 16.15% p.a. This is in contrast to an average of 13.83% p.a. for borrowers who are employed full-time.
5 ways to reduce risk on your low doc loan & get a better deal
Lenders like to minimise risk and uncertainty wherever they can. If you can remove some of the risk for them, you could get a lower interest rate on your low doc personal loan. Here are some options self-employed borrowers can consider:
If you own an asset (a car, house, shares) the lender may accept this as security for the loan.
You can provide a personal guarantee (a written declaration) to the lender about your ability to repay the loan.
Do a free credit score check and if you need to, take steps to improve your score before applying.
You can ask someone you trust to act as a guarantor for the loan.
If you can afford the higher repayments, agree to a shorter loan term so you’re paying off the loan sooner. Be sure to calculate what your personal loan repayments will be over different loan terms.
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