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. But even if a lender does not verify every piece of information, it is still considered a fraud. While it may be tempting to misrepresent your income, employment, or assets to appear more appealing to lenders, you could face serious consequences.
Not only can you lose your loan funds, which means you never see them or have to pay back what you borrowed immediately, but you can also face jail time. Always be honest when applying for a personal loan – or any form of credit – and let the lender know if there are any changes in your job or income.
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 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 that 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.
While it may be tempting to lie on a personal loan application given that the information is not always verified, this is strongly discouraged.
What happens if someone lies on a personal loan application?
Knowingly providing false information on a loan application is considered fraud and a crime. For example, putting an incorrect salary or falsifying documents would be considered a lie – and can seriously affect you.
You could 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.
Your credit score and your ability to take out loans in the future can also be affected if you are caught lying. Even if you don’t get caught, you keep hurting yourself. You could end up with a huge debt that you cannot repay. It won’t take long for this debt to affect other areas of your life, such as your ability to work and maintain a stable home.
Going to jail for lying on an application is rare, but it does happen. For example, a North Carolina woman was sentenced to 60 months in prison in 2015 after pleading guilty to providing false information about 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.
And in 2016, the Michigan attorney general’s office filed criminal charges against a state official, accusing him of filing false tax returns 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 to qualify for a loan or to obtain a higher loan or better rate.
- Not declaring your debt: In addition to your income, lenders need to know how much debt you owe so they can determine if the burden of an additional loan is reasonable.
- fake job: Applicants may pretend to have one or more fake jobs to make themselves look more financially stable than they are.
- Inaccurate residence: Most loans require proof of citizenship or residency in the United States, and some applicants who do not meet this requirement may still attempt 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: 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.
How do people get caught lying on loan applications?
Financial institutions have 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 for confirming information and reporting 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?
If a poor credit score is the main thing stopping you from getting a loan, you can 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.
Even if you’re struggling to qualify for a loan from one lender, you’re not out of the running for all loans. Some lenders offer loans specifically for borrowers with bad credit. When you work with a specialist lender like this, you’re more likely to get approved for a loan that’s right for you.
There are also a few categories of loans you might have better odds with:
- In-person loans: You can also succeed by working with an in-person bank or lender that you have worked with before. Going to a branch to talk in person means you’re talking to a real person who can be flexible rather than an algorithm on a computer database. A pre-existing relationship also means they may be willing to work with you again, even if your financial background isn’t the best. You may pay a little more in fees or have higher interest rates.
- Personal installment loans: If you are worried about repaying the loan all at once, a personal installment loan might be right for you. These loans are repaid in installments rather than all at once.
- Specialized loans: Other lenders may specialize in student or military loans. Banks or credit unions catering to students or the military may offer flexible options for personal loans. Although they still need your credit history, they can still provide a personal loan to military personnel or current students with less than satisfactory credit history.
The bottom line
Overall, the consequences of 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. Some lenders offer bad credit loans, low interest loans, and personal loans that don’t just take into account your income and credit.