If you’re in need of a personal loan and are worried about the requirements that most lenders have, then chances are you’ve done your research and have come across the term “no document loans”. Basically, this is a loan that does not require the potential borrower to provide any documentation, for example, proof of income, to get approved for a personal loan.
While this may sound great for those with inconsistent income or poor credit, no document loans do not exist. In fact, any lender that offers such a loan is likely a scammer. No legitimate lender can provide any consumer with a loan without at least a few requirements being met. And, often, one of these requirements is proof of some sort of income.
What Are No Document Loans?
No document loans are loans that don’t require any documents for approval. However, no legitimate lender can provide any consumer with a loan without at least some form of identification or proof of income. Typically, you’ll be asked to provide some form of government-issued identification and proof of income.
In some cases, some lenders may say they offer no document loans, but in reality, they just mean that you don’t need to fax or physically provide any documents. Instead, they may ask you to connect to your bank to view your bank statements and any sort of incoming income.
Find Out How Much You Can Borrow
Why Do Lenders Require Documentation To Approve A Borrower?
Most lenders need to know that a potential borrower has the financial ability to repay the loan. What this means is that a potential borrower needs to be receiving some sort of income. This is definitely where some consumers start to worry and look for alternative lending methods such as no document loans.
While lenders require you to have an income, it doesn’t mean you need to have a traditional 9-5 job. As we said above, this is not always the case. Many lenders accept various sources of income, including benefits received from the government.
Due Diligence and Responsible Lending Practices
What’s one of the most important qualities that any lender, regardless of what type of loans they provide, should have? We think most people would say honestly and maybe even fair lending practices. Good lenders understand that they have an obligation to ensure that the person they lend to can afford it.
All legitimate lenders must perform some type of due diligence. That may be a credit check or making sure that a borrower has a steady income. Once they perform their due diligence, lenders can approve or reject a borrower. Generally, lenders will approve you if you’ve shown you’re a financially responsible individual.
Risk Assessment
Another reason why a lender will require at least some form of documentation to approve a potential borrower is to assess risk. When a lender approves a borrower, they are always taking on a certain amount of risk. The risk is that the borrower will stop making their payments and default on the loan (for more information on loan default, click here).
As a lender analyzes an application, they will determine just how much risk they will be taking on should they approve that borrower. If the risk of default is too high, they will, unfortunately, have to reject the borrower.
Alternatives To No Document Loans
Searching for no document loans is a waste of your time. You’re better off looking for an alternative lender as they have flexible requirements.
Short-Term Personal Loans
If your “income” comes from any other source besides a 9-5 job, then a short-term personal loan is a great option for you. Typically, these types of loans are provided by online lenders who specialize in working with borrowers who have been rejected by banks and other more traditional financial institutions. If you receive a monthly income from the government (in the form of OAS, ODSP, Canada Child Benefit, or any form of disability) or are self-employed, then getting approved for this type of loan is still a possibility
Credit Cards
We’re including credit cards in this list because they are a relatively easy way to borrow a small amount of money for a short period of time. If you find yourself in an emergency and need to cover the cost of something right away, then charging it to your credit card is always an option. But, keep in mind that credit cards are expensive, irresponsible use of them could lead you down a road paved with debt.
Guarantor Loans
An option that works especially well for those with bad credit, guarantor loans can be useful because they don’t typically involve a credit check, at least if you’re the primary borrower. Instead, you’ll need to find another borrower, one who has good credit and a decent income, to co-sign the application with you. Their finances will then become the deciding factor for your approval and interest rate.
If approved, your guarantor loan would be similar to regular installment or personal loan. You’ll make even payments with interest over a specific schedule until your term is finished and your loan is paid in full. Despite your own credit being irrelevant, you should still see a credit score increase with every timely and full payment you make.
Keep in mind, however, that your cosigner is now partially responsible for your payments. If you default for a certain number of payments (lender dependent), the remaining balance of your loan will become your cosigner’s responsibility, meaning their finances and credit will also be damaged if they also can’t afford the payments. Always consider this before applying for a guarantor loan.
Not sure if a guarantor loan is the right option for you? Check this out.
Friends and Family
If you really need a “no doc” personal loan then asking a friend or family member for a loan is probably your best bet. Obviously, this is not an option that everyone can take advantage of as borrowing money from someone important in your life could lead to a strained relationship. If you do end up choosing this option just make sure that you come to a reasonable arrangement that both of you agree to.
If you have a 9-5 job where you receive a regular income, these options could still work for you, we’re simply trying to highlight alternative options for those consumers who are concerned that “no doc” personal loans are their only option.
To learn how to lend to friends and family members, click here.
What Does “Low Doc” vs No Document Loans?
Low doc personal loans are loans that don’t require an excessive amount of paperwork or documentation in order to be approved. They are also loans that often do not require a potential borrower to submit to a credit check or have a 9-5 job.
Low documentation does not mean that a lender will simply approve anyone that applies for a loan, this is, unfortunately, something that just cannot and does not happen.
Why Would Someone Want Low Documentation Loans Instead Of No Document Loans?
Low-documentation loans are more common than you might think. They often get a bad rap and are even sometimes associated with scams or dishonest lenders and even borrowers. But low doc loans are simply another financial tool. If used properly and responsibly, it can help any consumer in need. Taking out a loan is a distinctly personal choice. Therefore the reasons why someone might want to apply for a low doc loan are no different. With that being said, there are several common reasons why a low doc loan might appeal to a consumer.
Bad Credit or No Credit
For anyone with bad credit or no credit, a low doc loan is appealing because it typically means that no credit check will be performed. This means you won’t need to worry about getting rejected because your credit score is too low. Furthermore, consumers who have no credit because they are new to Canada will also find low doc loan appealing.
Self-Employed or Unemployed
Those who are unemployed or self-employed may benefit from a low-doc loan. This is because they simply need to show they have income.
Read this to find out about getting a loan without a job.
Concern for Privacy
Applying for a loan from a bank or other more traditional financial institution can be an invasive process, especially for those who aren’t comfortable discussing their personal financial situations. Low doc loans can provide you the privacy you want as you’ll only need to share minimal information in order to apply.
Fast Approval
Since low doc loans are typically smaller in size and come with shorter terms and few restrictions, a lender can approve a borrower in as little as a few hours (typically you should expect a 24-hour approval period). So, if you need the money asap, a low doc loan could be exactly what you need.
How to Get Approved For A Low Documentation Loan?
There is no way you can guarantee that you’ll get approved for a loan. However, there are ways to improve your chances. Whether you’re applying for a car loan or a personal loan, you’ll want to make sure your overall finances are healthy. That means you’ll want to lower your debt-to-income ratio by paying off some debts. Applying with an alternative lender can also help you qualify as they have lower requirements than banks.
Avoiding No Document Loans Scam
When you’re looking for no document loans, not all lenders will have your best interest in mind. It’s very important that you know how to spot a loan scam before you fall victim to it. Here are the most common ways to tell if a lender is trying to scam you:
- Loan Insurance or Upfront Fees. It is illegal for any lender to request an upfront payment or force you to pay loan insurance.
- Access to Your Personal Bank Account. Never provide a lender with direct access to your bank account, they will steal your money.
- Guaranteed approval. No lender, no matter how good they are, can guarantee you approval.
- Strange Payment Request. No legitimate lender will ever ask you to make a loan payment via a premade credit card or gift card.
Bottom Line On No Document Loans
While it’s not possible to find a legitimate no document loan, you can still get a loan with bad credit. Always make sure that you are comfortable with a lender before you proceed. A professional, reliable and trustworthy lender can and will make all the difference.
