What Happens if You Lie on a Loan Application?

Quick Answer

If you lie on your loan application, possible consequences could include:

  • Your loan application could be rejected
  • You may be forced to repay the loan immediately if the lie is discovered
  • You could face financial hardship if you’re approved for a loan you can’t afford
  • You could end up in jail
Serious young couple looking at online loan application form on a laptop in their kitchen.

Most loan applications ask for personal information such as what you do for a living, your income and what type of debts you have. Giving false answers can result in a range of consequences, including getting rejected for the loan, having to repay the loan faster than you anticipated and facing legal ramifications. Here's what you need to know.

4 Potential Consequences of Lying on a Loan Application

Applying for a personal loan? If you're thinking about lying on the loan application because you're afraid you might not get approved, don't. What may happen next is nothing particularly good.

1. Your Application May Be Rejected

You may get a chance to give the lender the correct information, but if a lender suspects you of fraud, you'll likely see your application rejected.

If you discover after submitting an application that you made an innocent error, it's advisable to contact the lender as soon as possible to give them correct details. Incorrect information on a loan application—harmless error or not—may delay your application's processing and may, ultimately, lead to you being denied.

In the event that the lender discovers incorrect information and you didn't contact them to make a correction, they may deny your application outright.

2. You May Need to Repay the Loan Immediately

When a lender finds out you lied on a loan application after the loan has already been distributed, they may cancel your loan and sever their repayment agreement with you.

If your loan is canceled, you will likely have to pay back whatever you borrowed, immediately. This could spell disaster for your budget, especially if you've already used the loan's proceeds to purchase a house, consolidate debt or for other purposes.

3. You May Be Approved for a Loan You Can't Afford

Although lenders attempt to lend to individuals whose finances can handle the repayment terms they set up, if you inflate your income or don't report debts you're paying back, you could be approved for a larger loan than you can afford.

This may mean you're stuck making payments your budget can't handle and could lead to bad consequences for your credit, such as foreclosure, repossession, missed payments and even bankruptcy.

4. You Could End Up in Prison

If you do offer up a blatant lie, such as saying that your annual income is $300,000 when it's actually $80,000, you could land yourself in serious legal hot water, including jail time.

Chances are that your loan also will be canceled if you're convicted of fraud, and you'll be required to repay it immediately—as well as facing financial penalties and court costs that the judge orders you to pay.

How to Get Approved for a Loan

There's a lot that goes into determining your eligibility for a loan, including your current income, how much debt you're already carrying and your credit score. While it's unlikely anyone applying for a loan will ever be in the perfect position to be approved, there's a lot you can do to increase your chances of getting approved for a loan.

Here are some things you can do to help improve the possibility of getting a loan.

  • Get a cosigner. This isn't always easy to do, or advisable. First, the cosigner needs to have good credit themselves; otherwise, they could be rejected for the loan. Secondly, if you have a cosigner, they are ultimately responsible for paying off the loan. So if you can't, they're on the hook for whatever you owe. As noted, it's also not always easy or possible to get a cosigner. Not everybody wants that kind of financial responsibility.
  • Apply for a smaller loan. If you were rejected for a loan or believe you will be, you may want to apply for less money than you'd ideally like to borrow—and then see if you're approved.
  • Apply for a different loan. Maybe you can't get a credit card, but you can get a personal loan. There are financial institutions that specialize in offering loans to borrowers with bad credit, but those loans may have high interest rates. Be careful about what terms and conditions you agree to if you're in a situation where you continually look for someone—anyone—to lend money to you.
  • Work on improving your credit. The stronger your credit score and credit report, the higher your chances of getting approved for a loan. If you can afford to wait to apply, work on building your credit. Paying all your bills on time, only applying for credit when you truly need it and bringing down any credit card balances you carry are all ways to improve your credit.

The Truth About Lying on a Loan Application

Remember what your parents taught you: It's never a good idea to lie. If you willfully lie on a loan application, you could end up seeing your loan rejected, having to pay back money you've just borrowed, taking out a larger loan than you can afford or facing legal consequences.

Keeping an eye on your credit report and credit score is always a good idea, but it's especially important if you plan to apply for a loan in the near future. Signing up for Experian's free credit monitoring service will alert you to changes to your credit report and give you insights on ways you can work on improving your credit.