Can you lie on a loan application? It’s a federal crime and here are the consequences.

can i lie about my income on a loan application

Your income plays a crucial part when lenders decide whether to approve your loan or not. Creditors will require you to submit proof of income, such as your bank statement, to check your ability to repay a debt.

Unfortunately, some people lie about their income to show that they’re financially stable and capable of getting a sizable loan without having any problems with its repayment. Have you ever asked yourself “Can I lie about my income on a loan application?”

Yes, you can, but not without consequences. Lying intentionally on your loan application means you’re committing fraud. You’ll face legal ramifications, and it’ll be more difficult for you to take out a loan in the future.

Is Lying on a Loan Application Especially Your Income, Illegal?

Laws exist to protect consumers against aggressive lenders, such as the Consumer Credit Protection Act. On the other hand, some laws protect lenders from consumers, such as the 18 U.S. Code § 1014. It says that making a false statement in a loan application and credit application is illegal and punishable by up to 30 years in prison or $1 million in fines.

If the lender finds out that you lied and provided false information on your loan application, the lender has the right to reject it. You will not only lose your credibility as a borrower, but you’ll also find it more difficult to get approved for a loan in the future, and you could face legal consequences.

In 2015, a court sentenced a Raleigh woman to prison for 60 months for defrauding several financial institutions, including the Bank of North Carolina. She provided false information about her income and assets when she applied for personal loans.

Meanwhile, a federal court sentenced a woman from Ohio to 14 years in prison and $73,554 in fines for charges, including committing fraud and aggravated identity theft.

In 2018, CoreLogic reported that one in every 109 mortgage applications has indications of fraud, including income falsification.

Why Do People Lie on Their Loan Applications?

People lie in their loan applications for many reasons. Some make false claims about their income to show that they have the financial means to pay back a loan or to secure a larger loan amount.

Aside from their income, some consumers also lie about their visa status, employment status, the purpose of the loan, outstanding debt, the value of your assets, marriage status, and the number of dependents.

Will Lenders Know That You Lied on Your Loan Application?

You probably think you’re smart enough to fool lenders into believing that every bit of information you provide on a loan application is true. Keep in mind that creditors follow protocols when evaluating a loan application, including spotting lies or signs of fraud.

Lenders and banks have a processing system that helps spot possibly fraudulent applications. They know how to identify inconsistencies in the documents you provide. Moreover, banks, lenders, and even credit bureaus work together by sharing information so that they can easily weed out applicants who are lying on their applications.

Do Loan Companies Check Your Bank Account?

Lenders may check your bank statements to get an idea of your income, cash flow, and average daily balance. Generally speaking, you have to submit bank statements for the past three months.

These documents help creditors determine your financial health. They help determine whether you’re capable of paying back the loan you applied for.

How Do Lenders Verify Income?

Lenders offering credit card, mortgage, auto, and other types of loans verify the income and employment of all their applicants. They will ask applicants to provide proof, such as bank statements, W-2 forms, tax returns, or recent pay stubs.

Lenders may use a third-party verification service, such as The Work Number from Equifax, to verify an applicant’s employment and repayment ability. Lenders may also contact your bank to verify your bank statements. They may also contact your employer and ask for income information.

Some lenders only need verbal confirmation while others require a fax or email verification. They can also request tax return transcripts from the Internal Revenue Service (IRS) to verify your income if you’re self-employed.

Can Your Loan Application be Declined Because of Your Income?

Yes. Your income is one of the factors that lenders consider when deciding whether to approve your loan or not. They need to make sure that you can afford to make at least the minimum monthly repayment amounts. They will check and verify your source of income.

Your application will most likely be rejected if the lender can’t verify your income using the data you submitted or if your income isn’t enough to pass the lenders’ requirements.

Other factors that lenders check when you apply for a loan:

1. Credit History

Lenders check your credit history when evaluating your loan application. They prefer applicants with a good credit history. If your credit report shows negative marks, such as defaults or too much debt, then your application may be declined.

2. Debt-to-income Ratio

It shows how much of your income is used to pay for a debt, including your personal loans, home, loan, credit card loans, and other types of loans you have. Your application may be declined if lenders determine that you can no longer handle the repayments if you take on another loan.

Lenders cannot reject your application because of your age, marital status, gender, religion, or race under the Equal Credit Opportunity Act (ECOA).

If your loan application gets denied, the lender must give you a notice of adverse action that explains why you got rejected. You can use this letter as a guide to improve your credit profile so that you’ll have higher chances of securing approval once you apply for a loan in the future.

How to Improve Your Chances of Securing a Loan Approval?

1. Increase Your Income

If your income can be the reason your loan application gets declined, it can also help you secure approval. You don’t have to lie about your income on your loan application. There are things you can do to improve your income.

Start a side hustle so that you’ll have another source of income. You can also ask for a raise at your job. Moreover, you must avoid changing jobs before you apply for a loan. You must keep a steady income for several consecutive months if you want lenders to see that you have a reliable source of income.

2. Improve Your Credit Standing

Aside from your income, lenders also consider your credit score when deciding whether to approve your loan or not. The higher your credit score, the better your chances are of getting the loan you applied for. Before you seek out a loan, you should make sure that your credit score is ready to impress.

Check Your Credit Report

Under the Fair Credit Reporting Act (FCRA), you can request a credit report from the major credit reporting agencies (Equifax, Experian, TransUnion) once every 12 months for free.

Check for Errors on Your Credit Report

After receiving your credit report, you should check it for mistakes that may affect your chances of securing new credit. If there are incorrect negative marks, file a dispute right away.

Keep a Low Credit Utilization Ratio

The amount of credit you used and the amount of credit available are also important factors in calculating your credit score. Your credit utilization ratio makes up about 30% of your credit score, and keeping it lower than that is beneficial for your credit score.

Pay Off Your Debt

You should also meet at least the minimum repayment amount. Paying your debt will help you improve your credit score and help you get out of debt as soon as possible.

Make Timely Payments

Lenders don’t want to see late or missed payments on the applicant’s credit report. Multiple late or missed payments will give an impression that you’re not a responsible borrower and may discourage lenders from approving your loan application.

Apply for New Credit Only When Necessary

Applying for a loan triggers a hard inquiry into your credit report. A hard inquiry or hard pull may lower your credit score by five points or less. Submitting multiple loan applications will have a devastating effect on your credit score. So, you should only apply for new credit only when necessary.

A lot of people are looking for financial assistance, especially during difficult economic times or when faced with an unexpected life situation. Having financial problems may tempt you to give false information on your loan application, so you’ll have higher chances of securing a loan. But don’t give in.  The chances of being found out is very high and the consequences are dire.

Conclusion

Don’t lie about your income or any other information you submit in your loan application. All the data and documents you provide when you take out a loan should be true and accurate. Apply for a loan that you can afford to repay instead of falsifying your income to get a bigger loan amount and face legal consequences in the end.

Additionally, there are things you can do to improve your chances of securing approval, such as paying off your debt, making timely payments, and keeping a low credit utilization ratio. From a denied loan application to jail time, lying on a loan application just isn’t worth the risk.

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