Lying on a loan application might seem harmless at first — after all, a lender might not even verify your inflated income claim or current employment status. However, intentionally lying on a personal loan application is considered fraud, and it can have real consequences. Below, we’ll explain how lenders check the information you submit with your personal loan application and what can happen if you intentionally falsify documents or other information.
What information do loan companies verify on their applications?
When you complete a loan application, you will be asked to provide information about your salary and your employer. To obtain a loan, you may also be asked to provide pay stubs, tax returns or bank statements, but this does not always happen.
For example, online lender Prosper says it verifies employment, income or both on about 61% of its loans. The company cautions investors against relying on self-reported information when making investment decisions.
“Applicants provide a variety of information regarding loan purpose, income, occupation and employment status which are included in borrower lists,” the company writes in its prospectus. “We do not verify the majority of this information, which may be incomplete, inaccurate or intentionally false.”
For many lenders, verification could be triggered:
- Based on credit profile or application information.
- When conflicting or unusual information is found in the application, such as a stated income that appears inflated compared to the stated job title.
- When fraud is suspected.
However, while it may be tempting to lie on a personal loan application given that the information is not always verified, this is strongly discouraged. You could face serious legal consequences and make it harder to get a loan later.
What happens if someone lies on a personal loan application?
Knowingly providing false information on a loan application is considered a lie and is a crime. For example, putting an incorrect salary or falsifying documents would be considered a lie – and can seriously affect you.
One example: In 2016, the Michigan Attorney General’s office filed criminal charges against a state official accusing him of filing false income statements when he applied for a personal loan in 2010.
Representative Brian Banks was charged with two counts of uttering and publishing false information and two counts of using “a false pretense” to obtain the $3,000 loan from the Detroit Metropolitan Credit Union. The most serious of the charges carries a prison sentence of 14 years after conviction.
Common Lies About a Loan Application
When people lie on their loan applications, they often use one of these untruths:
- Exaggerated income: Income is an area that is often misrepresented, with applicants inflating their annual income in order to qualify for a loan or obtain a higher loan or better rate.
- Do not declare debt: In addition to your income, lenders need to know the amount of your debt in order to determine whether the burden of an additional loan is reasonable or not.
- Fake job: Candidates may pretend to have one or more fake jobs in order to make themselves appear more financially stable than they really are.
- Incorrect residence: One of the requirements for most loans is proof of U.S. citizenship or residency, and some applicants who cannot meet this requirement may still try to apply for residency.
- Misrepresented objective: There are often requirements regarding how a loan can be used. For example, you cannot use a student loan to pay for a new car.
- Undervaluation of assets: In order to benefit from a lower rate, some borrowers may not declare all their assets.
Each of these lies and many more are punishable by law.
Risks of lying on a personal loan application
Going to jail for lying on an application is rare, but it does happen. For example, a woman from North Carolina was sentenced to 60 months in prison in 2015 after pleading guilty to providing false information about his income and assets to obtain personal loans. Prosecutors allege she used the money to help finance a $1.85 million home. In 2014, a woman from Ohio was sentenced to 14 years in prison for using other people’s identities to take out loans from LendingClub and other institutions.
If you lie on your loan, you could also lose your loan. Prosper says 11% of the applications he checks contain false or insufficient employment or income information. In these cases, the company cancels the loan before it is funded. With other companies, you may have to repay the loan funds you received immediately if the lender learns that you have misrepresented yourself. In addition to these criminal consequences, you will face a long list of other repercussions that could impact your financial future. For example, your credit score may be badly affected and you may not be able to take out loans in the future.
Even if you don’t get caught lying about your proposal, you’re still hurting yourself. These loan terms are put in place for a reason, and if you lie on your application for a loan, you could end up with huge debt that you can’t repay. It won’t be long before this out-of-control debt affects other areas of your life as well, like your ability to work and maintain a stable home.
How do people get caught lying on loan applications?
Financial institutions have put in place certain precautions to prevent them from granting a loan to an underqualified borrower. Your application and any supporting documentation will be checked for inconsistencies and inaccuracies, using public records and financial history to confirm the information you have provided.
Technology helps too. Programs and software have special features in place to confirm information and point out inaccuracies. Some forms also use special embedded coding to tell if a document has been altered, modified, or edited.
How can I get a loan without lying?
Even if you’re struggling to qualify for a loan from one lender, you’re not out of the running for all loans. For example, some lenders offer loans specifically to borrowers with bad credit, while other lenders may specialize in student or military loans. When you work with a specialty lender, you’re more likely to get approved for a loan that’s actually right for you. You may pay a little more in fees or have higher interest rates, but you won’t have to risk lying on your application just to get approved.
If a poor credit score is the main thing stopping you from getting a loan, you can also take steps to improve your credit score before you apply. Paying off debt, keeping old accounts open, and refraining from making many credit card or loan applications are all ways to boost your score and help you qualify for better rates and terms.
The bottom line
Overall, the consequences that can come from lying on a loan application — ranging from a reduced credit score to jail time — aren’t worth the rewards. Instead of lying to get a bigger loan, shop around for lenders who can give you the most money based on your current financial situation. There are lenders that offer bad credit loans, low interest loans, and personal loans that don’t just consider your income and credit.