Ah, you are correct. The term I was actually looking for is moral hazard.

The reason why banks require evidence of ability to repay the loan is because, without them, there would be a huge incentive for borrowers to take loans without paying them back. This is where the adverse selection comes in - the information asymmetry results from the borrowers knowing what their intent for the loan is and the incentive to mislead the lender. This leads to lenders being more wary (and implementing requirements) when issuing loans.