What a low doc loan is

Moneysmart’s glossary defines the term in two sentences. Put in our own words and read as a receipt, it has four lines, and each one points somewhere in the rest of this guide.

1. Line 1 Fewer papers: “less financial documentation” than a standard loan to prove income, assets and liabilities.

   Less is not none. ASIC’s guide to responsible lending says a lender cannot simply rely on what a borrower tells it about their finances: it should also take reasonable steps to make sure the information it takes into account is true. The papers ASIC lists for self-employed borrowers are in entry 3.

2. Line 2 Mostly taken out by people who work for themselves or run a small business.

   That is a description of who uses them, not a rule about who may. How a lender reads income that does not arrive as a regular wage is in entry 2.

3. Line 3 A dearer rate: they are “usually offered at higher interest rates”.

   The figure that puts a loan’s interest rate and most of its fees into one number is the comparison rate. When the law requires one, and what it leaves out, is in entry 4.

4. Line 4 Possibly conditions that limit what the borrower can do.

   The glossary does not say which terms. Moneysmart’s home loan guide lists questions a Key Facts Sheet does not answer, among them whether extra repayments can be made without a fee, whether there are break costs for repaying early or refinancing, and whether there are fees for using loan features.

The glossary entry was last updated on 23 August 2019, Moneysmart’s page says.

We searched the full text of the National Consumer Credit Protection Act 2009 (the compilation in force from 1 July 2026), its regulations, ASIC’s Regulatory Guide 209 on responsible lending and Regulatory Guide 273 on mortgage brokers for “low doc” and “low documentation”. None of them uses either phrase.

What the law does sort loans by is purpose. The National Credit Code applies when the borrower is a person (or a strata corporation) and the credit is wholly or predominantly for personal, domestic or household purposes, or to buy, renovate or improve residential property as an investment, among other conditions. ASIC’s guide sums up the test in a single heading: what counts is the loan’s purpose, not the type of borrower or the security offered.

So the same rules reach a self-employed borrower as a salaried one, and a loan with a thin file as one with a thick file: what matters is what the money is for. Where the line falls for a loan used in a business is in entry 2.

The responsible lending obligations ask a lender to make reasonable inquiries about a borrower’s financial situation and their requirements and objectives, to take reasonable steps to verify the financial situation, and to assess whether the loan would be unsuitable. ASIC calls the idea that the right amount of checking depends on the case “scalability”, and says what is reasonable “will vary depending on a range of different circumstances”.

Some things the guide expects whatever the paperwork:

• How much the borrower earns, how often and from where, and any changes to that income that can reasonably be foreseen.
• More than one pay period: ASIC says it is not enough to identify how much income came in during the last pay period, and that a lender needs to see whether the income is consistent and likely to stay at that level for the term of the loan.
• No reliance on information the lender has reason to believe is untrue; obvious inconsistencies are one of the circumstances ASIC names as raising doubt.

For a home loan, Moneysmart’s advice is to compare loans from at least two lenders, get the Key Facts Sheet for each one based on the amount you are likely to borrow, and work out what the costs would be if interest rates went up by 3%. Its mortgage calculator shows repayments and the total cost of a loan for a given rate and term.

If a broker is helping, the law requires the broker to hand over certain papers along the way, and ASIC says a mortgage broker must be satisfied that the products it can access and recommend are enough to act in the borrower’s best interests. That is entry 5.