What Is Alternative Documentation?

Alternative documentation is a term used to describe any documents accepted by a lender in order to establish specific facts about a loan applicant. Documents of this type are often aimed at providing proof of employment as well as some proof of a steady stream of salary, wages, or income. The idea behind alternative documentation is to provide lenders with trusted documents that affirm information contained on the loan application. This can then aid in expediting the processing of that application.

There are several commonly accepted forms of alternative documentation. One of the most common is the paycheck stub. Presenting a stub for the most recently processed payroll period allows the lender to quickly ascertain how much net income the loan applicant receives each pay period, and compare that to information on the loan application regarding annual income. In some nations, tax documents will also be acceptable as this type of supporting documentation, as well as copies of bank statements.

Most lenders will require some type of alternative documentation either at the time that the application is presented or at some point during the processing of the application. The range of documents that may be required will vary, although most will have to do with establishing the identity of the applicant, the amount of income generated by that applicant on a consistent basis and the applicant’s permanent address. From this perspective, these additional documents help the lender to avoid certain risks inherent in lending money and also aid in allowing the lender to make a more informed decision when evaluating the application.

Even lenders making short-term loans will often require some form of alternative documentation. For example, a payday loan firm may accept a paycheck stub as proof of income and will likely require a copy of a recent utility bill or a checking account statement in order to confirm the physical address of the loan applicant. In situations where the applicant is self-employed, many of these type of short-term loan providers will accept alternative documentation such as tax returns, income and expense statements, and bank statements as a means of confirming identity.

The benefit of providing alternative documentation is that lenders are able to proceed with relative confidence that the applicant has provided accurate and complete information on the loan application. This in turn helps to minimize the amount of time required to process the application and either approve the loan or reject it. From this perspective, the alternative documentation allows the applicant to receive an answer sooner or later, and move forward with the next step in obtaining the financial assistance he or she desires.