Lying is different from confabulation. As you say, lying implies intent. Confabulation does not necessarily, ergo it's a far better word than either lying or hallucinating.

A person with dementia confabulates a lot, which entails describing reality "incorrectly";, but it's not quite fair to describe it as lying.

I took note, and I agree. The problem is that (as a non-native English speaker), I had to look the word up. I'm concerned that this nuance could escape people, even when they know what the word stands for.

"Making things up" is precise but wordy. "Lying" is good enough, obvious, and concise.

A liar seeks to hide the truth; a confabulator is indifferent to the truth entirely. It's an important distinction. True statements can still be confabulations.