When it comes to financing your new car it’s possible to use either a low-doc car loan or a full-doc car loan. As the name suggests, low-doc loans require less documentation but have some other costs involved, while full-doc loans might take longer, but work out cheaper. Each has its own set of advantages and disadvantages:
Low-doc car loans
Advantages:
Simpler application process: One of the main benefits of a low-doc car loan is the simplified application process. Unlike full-doc loans, which require extensive financial documentation, low-doc loans typically require less paperwork. This means less hassle for borrowers.
Faster processing: Since there are fewer documents to review, low-doc car loan applications tend to be processed faster. This means you can secure the funds for your business or personal car purchase sooner.
Flexible use: Low-doc car loans are not limited to business purposes exclusively. In certain cases, you can use a car bought through a low-doc loan for personal use as well, as long as the majority of its use is for business purposes. This flexibility can be a significant advantage for those who need their vehicles for both work and personal activities.
Disadvantages:
Higher costs: Low-doc car loans often come with higher fees and interest rates compared to full-doc loans. Lenders perceive low-doc loans as riskier due to the limited documentation, and they may charge more to compensate for this inferred risk.
Lack of flexibility: Low-doc loans may come with certain restrictions that don’t normally come with standard car loans. This lack of flexibility can make low-doc car loans less desirable for borrowers with specific financing needs.
Full-doc car loans
Advantages:
Better interest rates: Full-doc car loans typically offer better interest rates compared to low-doc loans. Lenders consider full-doc loans less risky because of the comprehensive documentation, so they often provide borrowers with more competitive rates and fees.
More loan features: With full-doc car loans, you’ll have access to a wider range of loan features to suit your specific financial situation. Options like early payment, balloon payments, and other repayment features can make managing your loan more convenient.
Variety of lending options: There are a lot more full-doc car lenders available, providing borrowers with more choice.
Disadvantages:
Stricter requirements: Full-doc car loans come with a more extensive list of requirements, including thorough financial documentation. Meeting these requirements can be time-consuming and, in some cases, challenging, making it less suitable for those in a hurry to fund their car purchase.
Longer processing time: Due to the rigorous documentation and verification processes, full-doc car loan applications tend to take longer to process. If you need immediate financing, this may not be the ideal option for you.