A no-documentation loan does not require that applicants verify their income as they would need to do with other types of loans. The no-documentation loan is something that lenders can grant if the borrowers offer them a very large down payment. Lenders ask applicants to verify their income to prove that they have the means to repay the loan. Once lenders learn that an applicant will be able to repay the loan, they do not have to charge an exorbitantly high interest rate. However, if the applicant offers a large down payment for the no-documentation loan, more of the risk of lending this particular applicant money is shifted to the borrower, and the lender can charge a lower interest rate. The self-employed often have difficulties documenting their income when they apply for loans. Therefore, these applicants are turned down a lot. The no-documentation loan is an option for the self-employed who cannot easily verify their incomes.
