can i lie about my income on a loan application

by Aidan Kang, CFA
Senior Writer
UPDATED: October 13, 2022

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 on a loan application intentionally 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.

What Happens When You’re Caught Lying on Loan Application?

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 personal loans 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 mortgage fraud and aggravated identity theft. In 2018, CoreLogic reported that one in every 109 mortgage applications has indications of mortgage fraud, including income falsification.

Why do People Lie on 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 personal loans 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 their assets, marriage status, and the number of dependents.

What are the Common Lies on Loan Applications?

Some people would rather lie on their loan applications rather than find legal ways to boost their chances of securing approval. Some of the common lies include:

1. Exaggerating Income

Applicants tend to inflate their annual income to improve their approval odds or to get a better interest rate and higher loan amount.

2. Failing to Report Debt

Lenders check the applicant’s debt, too, aside from their income. They need to determine if the borrower can still pay the additional loan given their existing debt amount.

3. Adding False Employment

Applicants try to trick lenders by adding false employment details to show that they have a source of income. They may also do this to legitimize sources of income that do not come from employment. 

4. Wrongly Claiming Residency

Lenders often require proof of residency of citizenship. Some applicants falsely claim residency on their application even if they don’t meet the requirement.

5. Lying About the Purpose of the Loan

Some applicants lie about the purpose the loans will serve. This is a big no-no as lenders determine the riskiness of lending to you based on how the loan will be used.

6. Overvaluing Assets

Some applicants want to qualify for a lower rate so they overvalue their assets to make their financial situation appear more stable. This wouldn’t work if the assets are used for collateral though. As the lender will likely hire a third-party valuer to find out the value of your assets. 

Do Loan Companies Verify Applications?

Of course. Keep in mind that creditors follow protocols when evaluating a personal loan application, including spotting lies or signs of fraud.

One clear example is that a lender will look at your credit record. It contains a history of whether you’ve paid your loans on time, and shows how much debt you currently have. 

There is really no way of getting away with understating the amount of debt you owe. 

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 caught lying on their applications.

Aside from the standard verification process, lenders may decide to dig deeper if fraud is suspected or if there’s any unusual or conflicting information on a personal loan application.

Do Lenders Check Your Bank Account and Income?

Lenders may check your bank statement 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.

Lenders offering credit cards, 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, income 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 statement.

Financial institutions prefer to see that you have a stable job for at least three months. How do banks verify pay stubs? To make sure that you have a source of income, lenders often contact employers to confirm your employment status and income verification.

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 Personal Loans

1. Credit History

Lenders check your credit history when evaluating your personal loan application. They prefer applicants with a good credit history. If your credit history 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 monthly payments 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 a higher chance of securing approval once you apply for a loan in the future.

How to Improve Your Chances of Getting 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 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 Score

Aside from your income, lenders also consider your credit score when deciding whether to approve your loan or not. The higher your 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 score is ready to impress.

  • Check Your Credit Report. Under the Fair Credit Reporting Act (FCRA), you can request a report from the major credit reporting agencies (Equifax, Experian, TransUnion) once every 12 months for free.
  • Check for Errors on Your Credit History. After receiving your credit record, 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 monthly payment 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 record. 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 history. 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 are very high and the consequences are dire.


Don’t lie about your income or any other information you submit in your loan application like a fake tax return. 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.