Person pledging to be honest

Why it's important to be honest on a car loan application

If a tree falls in an abandoned forest, does it really make a sound?

We've all heard some variation of this question before. Underneath the nature-specific language, however, is a more universal conundrum: if no one is aware of something, can it really be said to have happened at all?

Dissenting philosophers can go back and forth on that one for years and never really get anywhere, but for our purposes, the thought experiment actually has more practical real-life parables.

One of them is the act of lying on a car loan application, something that people do all the time in order to secure loans and terms that otherwise wouldn't be available to them. In this analogy, the lie(s) is like the tree falling and everyone besides the applicant is like the humans who are conceivably within proximity of the forest. If the lie is told but never gets discovered, then it is (outwardly) as if no dishonesty has taken place.

People use this rationale all the time to justify acts of dishonesty—application-based or otherwise. If their lying is inconsequential enough to go unnoticed, then they can talk themselves into it being acceptable behaviour (and might just get away with it).

But lies can also have serious consequences. Right off the bat, let's get to the most serious one of all.

Federal fraud charges

In a lot of people's eyes, lying on a car loan application is just a harmless bit of fiction that allows them the qualify for the loan they deserve. But in the eyes of the Canadian Criminal Code, it is considered to be fraud.

Fraud charges in Canada are categorized based on the value of the fraudulent money. An offence where the value was under $5,000 will carry a maximum prison sentence of two years, while offences of any greater financial consequence could lead to up to 14 years in prison.

Depending on the situation and the severity of the lie(s), a lender who is misled by a borrower and finds out about it may not actually choose to pursue criminal charges (if payments are made on time, it may never find out). But if a borrower has caused the lender an enormous headache or has defaulted on the loan altogether, then it is very likely that the lender will take legal action.

Jeopardizes future financial credibility

If someone is charged with fraud, it will obviously stick with them and hurt their credibility going forward. However, not everyone is aware that dishonesty could also stick on a person's record even if it doesn't lead to a criminal charge.

First of all, the discovery of a borrower lying on their application is likely to be accompanied by a failure on the part of that borrower to make their payments. This means that their credit rating will fall as a result of them lying and trying to bite off more than they could chew. People checking your credit will take note.

But beyond that, there's also the fact that lenders have private means of sharing information with each other about borrowers. A low credit score is one thing, but it could be attributed to lots of stuff. If a lender is given insider information that a borrower has been dishonest with lenders in the past, then it further decreases the chances of them reaching a loan agreement.