When applying for a loan and the bank ask the question, what are you going to do with the money what is the best answer for them
How you answer is actually dependent on when they ask.
If it is early in the process the question/answer is to determine the type of loan you are looking for: Auto loan, home loan, home improvement loans, education loans; all have products that are geared to those uses. In many cases they will use the item you are purchasing as collateral for the loan. In return for this they will offer you a low interest rate, because they know they can protect their money be repossessing the collateral.
For these standard loans they will ask for more specifics before they give a check for the money because they need to know exactly what you are spending the money on, and they will need to file legal paperwork to protect their money.
If it isn't one of those standard loans then you are looking at a loan that is only backed by your signature. That loan could have a high interest rate. They are asking as part of the process of assessing their risk. Unless you are putting a lie on a form, I am not sure being untruthful puts you in jeopardy.
In some cases they don't care. People get lines of credit without knowing exactly what they are going to spend the money on.