Lying on a personal loan application is a bad idea

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. But even if a lender does not verify every piece of information, it is still considered fraud. While it can be tempting to misrepresent your income, employment or assets to seem 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 repay what you borrowed immediately, you can also face prison sentences. Always be honest when you apply for a personal loan — or any form of credit — and update the lender if there are any changes to your employment or income.

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 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.
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While it might be tempting to lie on a personal loan application given that information is not always verified, it 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 is a crime. For instance, putting an incorrect salary or falsifying documents would qualify as lying — and can impact you in serious ways.

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.

Your credit score and ability to take out loans in the future may also be impacted if you are caught lying. Even if you don’t get caught, you are still causing harm to yourself. You could get stuck with a huge debt that you cannot repay. It won’t take long for that debt to affect other areas of your life, like your ability to work and maintain a stable home.

Criminal consequences

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.

And 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.

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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 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 an additional loan’s burden is reasonable.
  • False employment: Applicants may claim to have one or multiple false jobs to make themselves appear more financially stable than they are.
  • Inaccurate residency: Most loans require proof of U.S. citizenship or residency, and some applicants who do not 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: 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.

How do people get caught lying on loan applications?

Financial institutions have certain precautions 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 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?

If an insufficient credit score is the main thing holding you back from a loan, you can 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.

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Even if you’re having trouble qualifying for a loan with 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 specialized lender like this, you are more likely to gain approval on a loan that works for you.

There are also a few categories of loans you may have better odds with:

  • In-person loans: You may also succeed by working with an in-person bank or lender you have already worked with. Going into a branch to talk in-person means you are talking to an actual person who may be able to 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 history 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 paying back the loan all at once, a personal installment loan could be right for you. These loans are paid back over several payments rather than all at once.
  • Specialized loans: Other lenders may specialize in loans for students or loans for members of the military. Banks or credit unions catered to student or military members may have flexible options available for personal loans. While they will still need your credit history, they may still give military personnel or current students with less than satisfactory credit history a personal loan.

The bottom line

Overall, the consequences of 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 that offer bad-credit loans, low-interest-rate loans and personal loans that take more than just your income and credit into account.