What is A Low Doc Loan? Is it a Good Option for the Self-Employed?
Being self-employed means you don’t make the same income, narrowing your chances of getting new credits to low doc loans and other personal loans.
What is a low doc loan? Is it good or bad for the self-employed?
Low doc loan is a type of loan that accepts applications from people who cannot produce proof of income like payslip and tax returns. Lenders only require some form of supporting evidence that the borrower is actually earning money and can repay the loan. While there are lenders who charge huge interest rates and fees that can push people into a debt trap, there are also reputable lenders that offer reasonable loan terms.
A low-interest low doc loan can help you prepare for the common troubles of self-employment:
While employed earners have their taxes withheld, you have no choice but to set aside taxes on your own each month. Otherwise, you may end up owing the government thousands of dollars that you don’t have – your original tax plus penalties and interests. So, if you’re short on cash and you have not been able to set aside money for taxes, personal loans can help you with tax payments.
No Pension Savings
How will you support yourself in retirement if you don’t have a pension plan? But, with unstable income, self-employed individuals may not be able to pay their premiums on time. You will miss out the best part of retirement which is financial freedom when you do not pay contributions through a good pension scheme.
It is advisable for the self-employed to take a proactive role in setting aside some money for retirement because unlike a company employee, you do not receive employer contributions through a company pension scheme. Not only will retirement savings give you tax benefits; it will also ensure that you will have a comfortable retirement. You can start right now by using low doc loans like personal loans or debt consolidation loans to pay off your monthly contributions.
How much money do you need to live on? If you can’t predict your monthly income, make sure that you get a rough estimate of the average earnings you get each month to figure out how much you need to spend on your living expenses such as food, utilities, housing and transportation. If you’re not making enough money to cover your living expenses, it is time to make a proper budget. How much will you allot to spend each month with the average income you expect? It is also advisable not to increase your spending if your business is not yet on solid ground.
No matter how small or big a business is – it has its own windfalls. This month may not be doing well like the others but if you have set aside money to your overhead account – you will have a cushion to draw money from, not only to support yourself, but to continue paying for important monthly bills such as your retirement accounts, emergency fund, and health insurance.
You can also get your paycheck from your windfall fund. It is important to set up this account to get a sense of financial security, and you won’t be so anxious about where to get your next income.
People in self-employment should brace for various running costs which may or may not qualify as allowable expenses and can be deducted on your taxable profit. For example, machinery and equipment are tax-deductible because they are considered as capital expenses.
If your net profit is $4,000 and you claim $1,000 deductions on allowable expenses, the remaining $3,000 is the taxable profit. Private purchases are not tax deductibles.
Take note that even if the following examples of business costs can be deducted from your taxable profit, you still need to pay for them. In such cases, debt consolidation or any other type of low interest low doc loan can be a good source of funding for your running costs.
For example, phone bills and paper are examples of office costs that a self-employed person needs to worry about every single day. The costs may vary depending on the nature of your business.
If you are running a small shop with staff, you have to deal with salaries. Of course, if you are into wholesale and retail, you might need raw materials or stock. Then, there’s the insurance cost, marketing cost and other vital expenses. Finally, utilities for lighting and heating may also add up. If you’re working from home, you can get tax deductions only for the portion of the mortgage interest, utilities and electricity that you use for your business.
A low-doc loan is one of the loan options for self-employed borrowers like you. Use it wisely by determining the exact amount you need. One important tip to consider is to check your total debt to income ratio. If your debts are higher than your income, low doc debt consolidation offered by debtconsolidationn.com.au is a better solution. Contact us today by filling our enquiry form here or call us on 1300 795 775.