Why loan application fibs are about to get more risky

More than one-in-10 Australians admit that they have knowingly omitted to declare a liability or debt on a loan application, according to a new survey.

And almost one-in-five believe it is okay to tell a “white lie” and state they have less debt than they actually have when applying for a loan or financial service.

Telling lies in a loan application can have far-reaching consequences.Credit:John Shakespeare

While it may be tempting to lie on an application for credit, the implications are sometimes overlooked or minimised by borrowers. However, all lenders are obliged to issue loans responsibly, and access a person’s capacity to make repayments accurately.

“When you make any application for credit, you sign a form that says that the information you provide is true and correct,” says Sarah Megginson, senior money editor at Finder.

The PureProfile survey of more than 1000 Australians conducted in July, found just 22 per cent of respondents said they were “very confident” in understanding the rules, legislation and consequences of lying in a financial service or loan application.

“Banks rely on this information to work out if you are in a position to service the loan. Having a credit application rejected means the lender does not think you can meet the repayments,” Megginson says.

“So, if you make an omission like leaving out a credit card or downplay your expenses, the loan could go ahead and that could put you under significant financial strain,” she says.

Alex Cherniakov, a consultant at GBG, which provides fraud detection and customer verification software and sponsored the PureProfile survey, says banks have good processes to detect undisclosed debts and lies about income, and not all of those who lie on their loan applications would be successful in obtaining credit.

However, the figures are nonetheless concerning, he says, as it means that many are not thinking about the possible consequences of their financial future when lying on applications.

One of the possible consequences is that if you are unable to meet your repayments, it can be noted on your credit record and make it harder to obtain future loans.

Credit reports are accessed by many lenders when reviewing loan applicants, and the scores calculated from them are playing an increasingly important role in obtaining credit.

Credit reports provide not only is negative information, such as missed payments, but also the payment histories on loans and credit cards.

Kevin James, head of advisory and analytics consultancy services at credit bureau Equifax, says the consequences of not telling the truth on applications are likely to become more serious, as there are early signs that households are coming under increasing financial strain.

He says that Equifax is starting to see a rise in late payments on unsecured personal loans, which is usually a leading indicator of more general household financial stress to come. That is because those under pressure tend to prioritise repayments on home loans and credit cards over personal loans.

The jobless rate increased by 0.1 percentage points in August, to 3.5 per cent; though that is still much lower than at the start of the pandemic.

James is expecting further increases in the jobless rate and a continuing decline in household savings to lead to a deterioration in credit scores, exacerbated by the Christmas period, when “people tend to overspend.”

Analysts are expecting the Reserve Bank of Australia to increase the cash rate, which is at 2.35 per cent, by between 0.25 percentage points and 0.5 percentage points at the central bank’s next board meeting in early October.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

The Morning Edition newsletter is our guide to the day’s most important and interesting stories, analysis and insights. Sign up here.

Most Viewed in Money

From our partners

Source: Read Full Article