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.
Personal loan information verification
When you fill out a loan application, you’ll be asked to provide your salary and employer information. 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 Marketplace 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.”
Another online lender, LendingClub, says that it conducts income and employer verification on about 70 percent of its loans. Verification may 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.
“Checking a borrower’s income or income source may reduce risk in certain circumstances, such as screening for exaggerated income on an application,” LendingClub states. “On the other hand, when an initial loan application passes our robust screening models, we generally deem the applicant to be less risky and therefore don’t always need to verify their income.”
So 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.
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.
And 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.
Even if your intent isn’t criminal, you could 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 also 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.
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, make sure you 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.