It is never a good idea to lie and this is especially true when completing a loan application. Some people are in such dire financial straits that they list false information on applications for loans. This includes stating that they own a home and are working. Though the consequences vary by loan provider, they may include criminal prosecution.
The situation becomes tricky because if the loan provider approves the loan based on the false information, this likely means that it did not do its own due diligence. The provider should review the application and verify the information provided by the applicant. Through this process, it would find that the applicant supplied false information and the loan could be denied.
By not conducting this due diligence and subsequently approving the loan, the provider is remiss. Many providers do not want to publicize the fact that they do not conduct credit and background verifications so they do not pursue criminal prosecution. This leaves the individual in a better situation than jail but can result in some hefty financial and credit-related consequences.
Whether an individual will be prosecuted for lying on a loan application often depends on several factors. These include the age of the credit, the amount of money involved, and the harm inflicted on the lender. If the individual subsequently files for bankruptcy, the Official Receiver reviewing the case may recommend prosecution. In most cases, a BRO will be ordered instead, extending the bankruptcy restrictions.
In the end, lying on a loan application is considered fraud. If the lender finds out that information was falsified, it can demand immediate repayment and revoke the account. Though the borrower may go to jail, this usually does not happen. In the case of a bankruptcy, the debt may be exempted from discharge or the bankruptcy restrictions may be extended.