Low Doc vs Full Doc Loans: Which Do You Need?

A lot of self-employed borrowers assume that because they don’t have payslips, low doc finance is their only option. Often it isn’t, and choosing low doc when you could go full doc can cost you lenders, options and better terms. Here’s the difference between the two, who each one suits, and how to work out which path gives you the most choice.

What full doc means

A full doc (full documentation) application is the standard one. You prove your income with the conventional documents: for employees, payslips and possibly a group certificate or bank statements; for the self-employed, usually the last one or two years of tax returns and notices of assessment, and often the business’s financial statements. The lender assesses your income from those documents in the ordinary way.

Full doc isn’t only for employees. A self-employed borrower with up-to-date tax returns and financials is a full doc applicant, and that’s the key point most people miss.

What low doc means

Low doc (low documentation) replaces some of those documents with alternative evidence of income, such as business bank statements, BAS statements or a declaration from your accountant. It exists for borrowers whose income is real but hard to document conventionally: a tax return not yet finalised, a new business without two years of financials, or taxable income that understates what the business really generates. Our guide to what a low doc loan is covers it in full.

The differences that matter

Lender choice. This is the big one. Every lender does full doc; only some do low doc, and each has its own low doc rules. A full doc application opens the whole panel; a low doc application opens part of it.

Pricing and conditions. Because the lender is working from less conventional evidence, low doc loans can be priced differently and can come with conditions such as a larger deposit, a lower loan-to-value ratio or a shorter term. Full doc applications generally sit on the standard terms.

Approval speed and simplicity. Both can be quick, but a clean full doc application with everything in order tends to be the more straightforward path through assessment.

What you can borrow. Low doc lenders often cap amounts or apply tighter ratios; full doc generally allows the full range.

None of that makes low doc a poor option. It’s an excellent option for the people it’s designed for. It just shouldn’t be the default for someone who could go full doc.

Which one do you need?

Ask yourself two questions.

Can you produce the last one or two years of tax returns and notices of assessment, and are they reasonably current? If yes, you’re likely a full doc applicant, even if you’re self-employed. Go that way; it gives you the most lenders and the best chance at standard terms.

Does your taxable income reflect what the business actually generates and what you can afford? Legitimate deductions can make a healthy business look thin on paper. If your full doc figures wouldn’t support the loan but your bank statements and BAS clearly would, low doc may be the better route, because it assesses the real cash flow.

Common situations, in plain terms:

• Established business, returns up to date, income on paper supports the loan: full doc.
• Returns not yet lodged for the latest year, or a newer business: low doc, often.
• Strong cash flow but low taxable income after deductions: low doc may serve you better.
• Employee with payslips: full doc, straightforwardly.

Who gets approved on low doc, and what they need to show, is covered in who qualifies for a low doc business loan. For a car specifically, the personal-versus-business-use distinction adds a wrinkle, which we’ve explained in low doc car loans for the self-employed.

You don’t have to guess

The honest answer is that many self-employed borrowers sit in between, and the right call depends on the numbers and the lenders’ criteria, which change. A broker looks at what you can actually provide and tells you which path opens the most doors before anything is submitted, including whether a quick update of your returns with your accountant would move you from low doc to full doc and widen the field. We arrange both. If low doc is right for you, our low doc business loans page covers it; if you’re a full doc applicant, the standard business loans and equipment finance paths are open to you, and for how the business structure itself affects the assessment, see how your business structure affects finance.

Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging full doc and low doc finance for employees, the self-employed and businesses Australia-wide.

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