Lying on a loan application may seem harmless at first — after all, a lender may not even check 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 cover how lenders verify 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 fill out a loan application, you’ll be asked to provide your salary and employer information. To get a loan, you also may be asked to provide pay stubs, tax returns or bank statements, but that doesn’t always happen.
For example, online lender Prosper says that it verifies employment, income or both on about 61 percent of its loans. The firm cautions investors against relying on self-reported information when making investment decisions.
“Applicants supply a variety of information regarding the purpose of the loan, income, occupation, and employment status that is included in borrower listings,” 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 information on the credit profile or application.
- When conflicting or unusual information is found in the application, like a stated income that appears inflated relative to the stated job title.
- When fraud is suspected.
However, while it might be tempting to lie on a personal loan application given that information is not always verified, it is strongly discouraged. You could face serious legal consequences and make it harder to take out a loan down the road.
What happens if someone lies on a personal loan application?
Knowingly providing false information on a loan application is considered lying and is a crime. For instance, putting an incorrect salary or falsifying documents would qualify as lying — and can impact you in serious ways.
An example: In 2016, the Michigan attorney general’s office filed criminal charges against a state representative accusing him of producing fake income statements when he applied for a personal loan in 2010.
Rep. Brian Banks was charged with two counts of uttering and publishing false information and two counts of using “a false pretense” to get the $3,000 loan from Detroit Metropolitan Credit Union. The most serious of the charges carries a prison term of 14 years upon conviction.
Common lies on a loan application
When people do lie on their loan applications, they often use one of these untruths:
- Exaggerated income: Income is one area that’s commonly misrepresented, with applicants inflating their annual income in order to qualify for a loan or to get a higher loan or better rate.
- Not reporting debt: In addition to your income, lenders need to know how much debt you have so they can determine whether the burden of an additional loan is reasonable or not.
- False employment: Applicants may claim to have one or multiple false jobs in order to make themselves appear more financially stable than they really are.
- Inaccurate residency: One requirement of most loans is proof of U.S. citizenship or residency, and some applicants who are unable to meet this requirement may still try to claim residency anyway.
- Misrepresented purpose: There are often requirements regarding how a loan may be used. For example, you cannot use a student loan to pay for a new car.
- Undervaluing assets: In order to qualify for a lower rate, some borrowers may not report all of their assets.
Any of these lies and more are subject to penalty by law.
Risks of lying on personal loan application
Going to prison for lying on an application is rare, but it does happen. For instance, a North Carolina woman was sentenced to 60 months in prison in 2015 after she pleaded guilty to providing false information regarding her income and assets to obtain personal loans. Prosecutors allege she used the money to help finance a $1.85 million home. In 2014, an Ohio woman was sentenced to 14 years in prison for using other people’s identities to take out loans at LendingClub and other institutions.
If you lie on your loan, you could also lose your loan. Prosper says that 11 percent of the applications it verifies contain false or insufficient employment or income information. In those cases, the company cancels the loan before it is funded. With other companies, you may have to immediately repay loan funds you’ve received if the lender learns that you’ve misrepresented yourself. In addition to these criminal consequences, you’ll face a long list of other repercussions that could impact your financial future. For example, your credit score can take a large hit, and you may not be able to take out loans going forward.
Even if you don’t get caught lying on your application, you are still causing harm to yourself. These loan requirements are put in place for a reason, and if you lie on your application to get a loan, you could get stuck with a huge debt that you cannot repay. It won’t take long for that uncontrollable debt to affect other areas of your life, too, like your ability to work and maintain a stable home.
How do people get caught lying on loan applications?
Financial institutions have certain precautions in place to protect them from giving 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 provided.
Technology helps, too. Programs and software have special features in place to confirm information and flag inaccuracies. Some forms also use special embedded coding to track whether a document has been altered, modified or edited.
How can I get a loan without lying?
Even if you’re having trouble qualifying for a loan with one lender, you’re not out of the running for all loans. For example, there are some lenders that offer loans specifically for borrowers with bad credit, while other lenders may specialize in loans for students or loans for members of the military. When you work with a specialized lender, you are more likely to gain approval on a loan that actually works 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 an insufficient credit score is the main thing holding you back from a loan, you can also take steps to improve your credit score before applying. Paying down debt, keeping old accounts open and refraining from lots of 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 with lying on a loan application — everything from a lowered credit score to jail time — aren’t worth the rewards. Instead of lying to get a bigger loan, shop around for lenders that can give you the most money based on your current financial situation. There are lenders out there that offer bad-credit loans, low-interest-rate loans and personal loans that take more than just your income and credit into account.