No Doc Loans – Pros and Cons

The idea of a no doc loan is very appealing. You can walk into the loan office, fill out the necessary paperwork, and walk right back out in much less time than you normally could if you opted for a loan requiring documents. Why is it so easy? Because there is much less paperwork involved. No doc loans certainly have their advantages – particularly if you are self–employed and have a hard time proving your income. Even so, taking out a loan like this isn’t always the right answer because there are some potential drawbacks. The cheapest unsecured loans are almost never found in this form. According to Forbes, loans like this almost disappeared completely between 2006-2007, but since then they’ve made a comeback.

Reasons to Get a No Doc Loan

Self-employed people often take out loans requiring no documents or complicated paperwork because proving their income can be difficult. People who work for themselves generally don’t have regular weekly paycheck stubs to offer up as proof of income, and their taxes are usually much more complex than those of a person with a basic 9 to 5 job. No document loans are a good way to bypass all these minor obstacles. If you’re self-employed, you can just tell your lender on average how much you earn and they will take your word for it. People who aren’t self-employed can also opt for these loans, but they’re much more common amongst people who are.

The Drawbacks of Having No Documentation

Unfortunately, there are consequences to everything that seems too easy to be true. If you take out a no document loan, you’re almost definitely going to have a higher interest rate and monthly payment than if you took out any other type of loan. This is because your lender is taking a risk by taking your word on what you make. It doesn’t even matter if your credit score is excellent — you will most likely not get the best loan terms possible if you go this route. This rule applies to all types of loans with no paperwork requirements, including no doc home equity loans.

Should You Go Through With It?

Are no doc loans the right choice? Maybe. If you know for a fact that your income is going to be very difficult or even impossible to prove or, you simply cannot locate or acquire the paperwork you need to apply, getting a loan like this could be the right choice — especially if you need money rather quickly. Be careful not to stretch the truth at all when you give the lender your numbers. These little falsehoods can and will catch up with you. Your lender has the right to request the necessary paperwork at any time in spite of the fact you didn’t have to have it when you applied. Even if you don’t provide proof of income, try to give your lender all the paperwork you can because Quicken states that the more paperwork you give, the lower your interest rate is likely to be.