In short, no doc loans are a group of loans that require low or no documentation on your end. That basically means that you do not need to provide proof of your income or other personal info when applying for the loan. As you can understand, that can be really good for those people who have income that they wish to remain "hidden". No doc loans allow you to keep those incomes secret, and meanwhile still be able to get a loan.

Since there is no documentation involved and the risk of the lender increases, the interest rate for such loans is significantly higher than any other type of loan. It has been observed that many people just don't care, because keeping their income hidden and avoiding any income taxation, outweighs the high interest rate drawback.

Also, many people common known as high risk borrowers, prefer such loans when they are about to make a substantial and risky investment. It's common sense that many lenders would not loan them any money if they could assess the risk level of their investment and the chances of the borrowers returning the loaned money. Thus, sometimes these loans provide a solid platform for scams.

Nevertheless, there are many advantages to no doc loans, since they are easy to get and since the amount of documentation you need to provide is as minimal as possible, the application process is fast. Sometimes you will just be asked to state your income, and you do not have to provide any further documentation to support that income like tax returns and such.

Also, in some cases, people might prefer no doc loans over the traditional mortgages. As you already know, for a normal mortgage loan, you have to pay back a certain amount on a monthly basis. For some people who have a steady job, this will not be a problem at all, but for others that own their own business, or people that make money based on commission and people that live off investments, it can prove to be very hard. Since their income fluctuates a lot and it is hard to keep up with a fixed amount of money every month, they apply for no doc loan instead and pay it back whenever they have the money. Even though it turns out to be more expensive, a no doc loan is designed with that group of people in mind.