Responsible Borrowing

What Happens If You Lie on a Loan Application?

It's not a good idea to lie on your loan application

It’s in the nature of human lives to show how bright they are. They are not afraid to tell a few lies if it makes them look more intelligent and to show just how clever they are. Unfortunately, not everybody lies to be smart. There are sometimes darker reasons for bending the truth to suit oneself.

Some people are pathological liars; others deem it necessary to lie for other reasons. But how about telling a lie on a loan application? Lying in the business world means falsifying, and falsifying equals fraud.

CoreLogic’s mortgage fraud report found that 1 in 123 applications contained fraud in the second quarter of 2019.

‘White Lies’ and False Info on Your Loan Application

Admittedly, in everyday life, “white lies” can often save you from embarrassment as well as helping you to avoid hurting others. Lies can be told to maintain your privacy, as well. Sometimes, though, it can help make things easier when you want something that may be commonly difficult to come by.

If you put the morality issue aside for the moment, then you can say that providing false information on your loan application is not so bad – unless you are caught, of course. One of the common white lies on loan applications is overstating the income.

What if your lie is detected? Will it disqualify you and affect the loan process? Perhaps we can throw a bit more light on this issue.

Why is Lying a Bad Idea?

Lying on loan application - is it a good idea

There are several reasons that lying on loan applications is not a good idea. Here’s just a few of them below.

Lying on a loan application is illegal

The lending industry is governed by some laws. The laws state that the lender and the borrower will be honest in their dealings. When a borrower signs the credit agreement, it shows the repayment terms. In the same way, using that logic (and law), the borrower should provide the lender with true information and statements.

Put simply – lying on a loan application is illegal.

If a borrower is caught out lying, providing false information on the loan application prior to approval, then the lender can reject the application outright. The exposure of the lie on the application can also have some further, more serious repercussions and penalties.

The risk of getting caught is too high

If it’s found out that you lied in your loan application, you will obviously lose all credibility as a borrower. It will certainly be held over your head for future transactions. The truth of the matter is that if the information on your loan application is found to have been purposely put there, not an innocent error, you have committed a crime. Penalties can vary from fines to jail, depending on the severity of the matter.

A borrower needs to be even more careful when applying for an unsecured loan, with no collateral involved. A rejected loan application results in long-term vulnerability for future applications.

You set your own trap

Lying to obtain an unsecured loan is not recommended even if you are not caught. You will get a loan for which you are not qualified. That can lead to having an unmanageable debt and eventual loan default.

You probably don’t need to lie

Getting approved for a loan isn’t as challenging as you might think. There’s a lot of different types of loan products and many lenders that can help in your circumstances. Whether you have some grey areas in your credit history or don’t have an income that can be verified, there are online loans with minimum requirements for which you might be eligible. For example, if you have a poor credit score or no credit score, you still might qualify for a payday loan for bad credit or for a small personal loan. Our network of direct lenders run soft credit checks, which don’t damage your score.

Instead of taking the risk of being caught, with 12M Loans, you can apply for a fast online loan in a few minutes and get your funds the next business day.

What are the Common Lies?

Lenders have experience dealing with loan application frauds, and they know what to look out for. Here are some of the common lies they see:

  • Reported income
  • False employment
  • Inaccurate residency status
  • Source of deposit
  • The purpose of the loan
  • Over/undervaluing assets
  • Not declaring debts like credit cards, home loans, or personal loans
  • Not reporting children or spouse information

How Can You be Caught?

If you lie on a loan application, there is a high probability that you’ll get caught. There are many ways lenders can find out that you’re lying on your loan application, including:

1. Supporting documentation you providetax returns, payslips, and bank statements have a lot more information than you know. The inconsistencies are easy to spot.

2. Loan contract – Additional documents that are returned with your loan contract when it’s ready for settlement can raise red flags.

3. Hidden codes – There are hidden codes on many of the documents which can tell the lender if they have been edited.

4. Post-settlement auditing – If your loan is audited after your loan application has been approved, they can find something that was missed.

What Can Happen If Someone Lies on an Online Loan Application?

What happens if you lie on a loan application, and it’s found out?

  • The loan is rejected
  • Your credit score is badly affected
  • You may have to go to court and be fined
  • You may go to jail
  • You may not submit future loan applications
  • You lose your integrity

If you lie on a loan application, but it hasn’t been advanced, it goes beyond being declined. Your name is added to a blacklist and could even be reported to the police.

If your loan has settled, there’s even more to lose. Your lender could “call-in” your loan, meaning send you a notice stating you have 30 days to repay the loan. Your only choice is selling or refinancing the loan at that point.

You Definitely Don’t Want to Get There

Here’s a story that will paint a picture of what happens if you lie on a loan application. Shahram was caught lying about income on loan applications to three different federally insured lenders. All three loans ended up going into default.

This lying was considered a federal crime. He was sentenced to 18 months in federal prison.

In his appeal, he tried to argue that the interest he paid on those loans should be deducted from the lender’s losses, which would reduce his sentence. The judge determined that Shahram’s lying on the loan applications actually resulted in a loss to the lenders, and the unpaid interest increased their loss, and therefore his sentence was correct. Committing a federal crime doesn’t pay.

How Can You Get a Loan Without Lying?

Lying on loan application is considered a fraud

You don’t have to resort to lying to get approved for an online loan. 12M Loans can find a direct lender that can help you in your situation. We are working with a reliable network of direct lenders who offer competitive rates and terms, accepting applicants with any credit score. All you need to do is to fill out our online application form on our website, and we’ll do the rest. You can learn more about how it works and how to apply for a loan online here.

Final Words

As you can see, lying on a loan application is going to put you in a terrible situation and just isn’t worth the rewards. Don’t lie to get approved or get a larger loan. Instead, apply for an payday loan online (or any other online loan) with 12M Loans, providing accurate information, and avoid the stress of knowing that you lied.

Our ultimate advice is: Don’t try to act so smart by lying on your loan application. It’s actually pretty dumb!

17 thoughts on “What Happens If You Lie on a Loan Application?

  1. I recently applied for a personal loan. I provided all the correct information. At least I thought. I have recently moved and my current address hasn’t been updated from the previous address on my state id. Also when providing my full name I didn’t inclue my middle name. None of this was intentional. What do I do to prove that I didn’t purposely give false information?

    1. Hi Jessica,
      Thank you for sharing your concerns with us. The best way to go is to contact your lender and share the changes in your personal and contact details directly with him.

  2. I have an open loan and i thought id provided all the required information. As my employment stopped six weeks ago i havent been able to make the payment. I am applying for a leniancy with hardship. I went on the account to look at my profile and i noticed i put the rent amount as fortnighlty not weekly. Secondly I have put 2 dependent children as the 3rd is not there all the time staying with her other parent often and works part time after school. Is this serious mistake what could be seen as fraud? I dont want to do the hardship if it is though i really need to do it.

    1. Hi Julie,
      It sometimes happens that in the process of applying for a loan some information are inaccurate. Classification of certain events/fact as frauds is usually done by dedicated employees or functions who are trained on how to identify, handle and solve such cases. It also implies a thorough analysis of the case and assessment of the risk. One thing is sure: having incomplete or wrong information on your account can cause problems both in the short-term and in the long-term period as well. You need to get in touch with your lender and explain the situation. You’ll want all your details to be up to date there.
      Good luck!

  3. Hi, We we’re selling our business.Wr signed a purchase agreement and before the closing date I found our that the buyer had applied for a business loan using our business tax id, bank statement that we gave them earlier with the excuse to see our monthly to month expenses, stating in the loan that they are the owners. Is this legal? After we found out we stopped the sale. Now they are treating with suing as for breach of contract. what should we do to defend ourself? Did they do anything ilegal? What should we do next?

    1. Dear Elaone, it’s a pity to find out about your struggles.
      As we’re not a financial institution & we’re not even involved in advertising business loans, we are sure that a lawyer or a financial counselor will help you handle your situation in the best way.

  4. A car dealership “changed” the numbers on my credit application without my knowledge. I’m know assuming it is a common practice for them. Any advice on what I should do?

    1. Hi Ree,
      Changed information on a credit application is an absolute red flag & it should be treated in a fast and correct manner. The first thing to do is to contact the agent you’ve been working with and ask for explanations. It sometimes happens that such errors are due to a fat finger or less attentive clerk who does mistakes.

      If that doesn’t help & if they are not willing to update the details, or if they provide misleading information for you, then you should alert the next level institutions like CPFB or the state attorney.

  5. I know someone who applied for a loan that isn’t available in their state by using someone else I knows address who lives in a state that can get that type of loan. That second person however, who’s address was used, is elderly and mental facilities aren’t fully there. They were blindly and falsely lead into allowing the other person to use their address. My question is what is the outlook on punishment for that second person knowing the situation with them not being there mentally?

    1. Dear Michelle, such situations need to be handled together with the lender or with help of the bodies in charge with consumer protection.

  6. I recently applied for a loan, because I left my job of 3 years I was worried the one month at my job wouldn’t suffice. I stated I was still at my old job, they called a # I provided to verify employment. I stupidly acted as if I was the HR and gave them the info requested. They obviously found out – rejected the loan and have stated their legal team will probably be prosecuting me. This would be my first offence, no priors, no record.

    1. Dear Michael,
      Thank you for being open to bring that up and discuss it. This is a story from which other clients can learn a lot.

      Lying to your lender would be the exact classical example of how you wouldn’t want to act while taking a loan. Unfortunately, such cases happen often. Every similar action poses a risk on the client, as it can directly impact one’s ability to repay the loan. We strongly recommend and encourage our clients to NEVER provide false information on their loan applications, as this is a serious legal infringement.

  7. I think I know someone who may have lied on their loan document. He currently leaves in big house in Washington DC. He also failed to release his tax returns. Can you take a guess

  8. I recently applied for a refiance of a loan I already had they approved me and when I brought all my information in they said it did not match what they had on file and I told them everything was the same as the first time they denied the refiance after they said I was approved but when I got home I found my original contract my income and my husband’s inco.e was alot more than what we told them what can I do about this

  9. my mother inlaw applied for a unsecured guarantor loan and faked her daughters personal details and signatures and now she is guarantor for her loan which she has defaulted her daughter knew nothing about the loan its with cleanloans !

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