If you are self-employed and on the hunt for a new set of wheels to meet your business needs, you may consider opting for car loan that requires few documents.
Typically suited to ABN holders with irregular income, a low documentation or low doc car loan requires less documentation to be presented to a lender. Here we’ll take a look at the ins and outs of low doc car loans to help determine if they are right for you.
What is a low doc car loan?
Low documentation or ‘low doc’ loans operate in similar fashion to a standard loan, except the only paperwork needed is typically proof of identification, privacy and application forms - however this will vary across lenders. On the other hand, a standard car loan requires borrowers to provide additional information including bank statements and pay slips along with your credit profile to determine your eligibility.
Those self-employed unable to meet qualifying criteria for a standard car loan while being unable to provide sufficient income and tax return statements for the past two years, will likely opt for a low doc car loan. Although this may be the case, low doc car loans typically bear higher interest rates than standard car loans.
Interest rates charges like any loan are based on your financial position, credit profile and car details including the make and model.
Pros and cons of a low doc car loan
- Limited documents: For those who may struggle to prove their income due to irregular work patterns or contracts, low doc car loans mean income and bank statements are not required.
- Tax benefits: Those who own a business and obtain car finance with a low doc car loan are able to claim tax deductions and GST benefits if they are an ABN holder. This means the interest the car loan has the potential to become a tax-deductible expense.
- Vehicle depreciation: As with tax, you may also be able to claim vehicle depreciation as a tax-deductible expense.
- Higher interest rates and fees: Low doc car loans typically attract higher interest rates and fees, meaning it may take longer to pay off the car loan.
- Restricted usage: The vehicle financed must be used for business purposes at least 50% of the time to qualify for a low doc car loan.
How to qualify for a low doc car loan?
To qualify for a low doc car loan, you’ll need to tick off the following criteria:
- You must be an Australian citizen, permanent resident or an acceptable visa-holder.
- Your ABN has been active for at least one year.
- You’re registered for GST.
- You’re asset-backed, namely by a house or commercial property.
- If you’re not asset-backed, you should have a large cash deposit which you can contribute to the purchase.
The key aspect to qualify for a low doc car loan is the fact that the vehicle must be used for more than 50% business use. When searching for a low doc car loan, you may also find with many lenders, you'll need to have held your ABN for a minimum of twelve months.
It's important to remember that applicants for low-doc loans still need to declare their income, they just don’t need to provide the same level of evidence for that income as you an individual would need too.
Low-doc car loans could be an option for those who don’t have up-to-date financial statements, or for those who just want an easier, quicker approval as they manage their business day to day.
What documents are required?
As the name suggests, applying for low-doc car loans require less paperwork than a regular car loan. At a minimum you need:
- Proof of ID
- Proof of comprehensive insurance over the car being purchased
- Trust Deed or Partnership agreement if applicable to your business
- Evidence that your ABN has been active for over two years
Not every lender has low-doc car loans available and each lender that does may have a different eligibility or lending criteria and document requirements, e.g. bank statements, so this is a guide only.
To apply for a low doc car loan, talk to our dedicated team of car finance brokers for more information.