Does Gold Loan Affect CIBIL Score

Whenever you apply for a credit instrument, it affects your credit score. Gold loan is a type of secured loan which you take against gold as collateral. Hence, a gold loan may impact your credit score. However, you must be aware how taking gold loan might affect your credit score and avoid harming it.

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How Gold Loan Affects Your CIBIL Score

As gold loan is a secured loan, you do not have to meet too much strict eligibility criteria to avail this loan. Unlike other unsecured loans, which might have higher interest rates, gold loan offers comparatively lower interest rates. Continue reading to learn more about how gold loan affects your CIBIL Score.

Benefits of Borrowing Gold Loan to Improve CIBIL Score

A gold loan can help you in improving your credit score in more ways than one. Below-mentioned discussed are the benefits of borrowing a gold loan to improve CIBIL Score:

Secured Loan: Your gold loan is a secured loan because it is backed by collateral (your gold). Hence, this lets the lender offer you a loan on your gold even though you have a low CIBIL Score because there is no risk involved.
Avail Flexible Repayment Options: Your gold loan typically has flexible repayment options, that is, you can choose from the payment options available to you which makes it feasible for you to make timely payments which can help you improve your CIBIL score.
Affordable Interest Rates: Gold loans comparatively have lower interest rates than unsecured loans such as personal loans, business loans, etc. This can be an affordable option for the borrower who is looking to improve his/her CIBIL Score.
Quick Approval: The chances of getting a gold loan approved are quite quick and easy because the lender will have your gold as collateral. Hence, there is no hassle for you to get this loan approved.

How to get a Higher CIBIL Credit Score with a Gold Loan

A gold loan can be a crucial option to improve your creditworthiness. Below-mentioned are some tips to follow to enhance your CIBIL Score through gold loan:

Make Timely Payments: This is one major factor in establishing a good credit score by making timely payments in full. This lets the lender know that you are disciplined in managing your finances and is a positive sign for the lender
Be Responsible while Borrowing: It is advisable to opt for the gold loan amount which you can manage to pay without straining your finances. If you end up borrowing beyond your repayment capacity and end up defaulting, it might not only impact your credit score negatively but also put your gold in danger of being confiscated
Go for a Reliable Lender: You should not look only at a lender that offers you low-interest rates on your gold. You should also opt for a lender that is trusted and credible with precious products
Analyse your Loan Terms: Before you take a gold loan, evaluate all its terms and conditions thoroughly. You need to ensure that you will be able to repay the loan within the specified period. Alternatively, assess the tenure, repayment schedule, and interest rate before signing loan application
Check CIBIL Report and Rectify Errors, if any: When you repay your gold loan, do keep a check on your CIBIL report. Ensure that there is no default in your credit report. Sometimes, your repayment transactions might not be reflected in your report. If so, you must report the same to CIBIL and get it rectified

Additionally, you can follow the below-mentioned ways to improve your credit score:

Clear your Debts: If you have any outstanding debts, make sure that you make an effort to clear those debts as soon as possible. This will demonstrate that you are responsible in handling your credit which may help in improving your credit score
Avoid Closing Old Credit Accounts: The older your credit age is, the more preferred you shall be with the lenders. If you have any delinquent accounts, ensure that you take the charges and clear all debts in order to maintain those accounts well
Avoid Hard Enquiries: Too many hard enquiries in a short period of time might impact your credit score negatively because it will portray you as credit hungry. The lenders might consider you a risky borrower in such a scenario.

Things to Consider Before Taking a Gold Loan

Banks and NBFCs both provide a gold loan. However, you must examine their rates, terms and conditions, eligibility restrictions, loan amount, etc. before applying for a gold loan. Let us understand things you must consider before applying for a gold loan:

Value of Gold

Your gold value plays an important role in determining the amount of your gold loan. Having said that, if your gold has additional stones and designs, it will not be considered in your amount. Only the gold amount will be considered at the time of applying for a gold loan. It is important to know that you will never get 100% of your gold value as a loan amount. The ratio of the loan amount might vary from lender to lender.

Evaluate Interest Rates

Interest rates might vary from lender to lender. However, there might be chances where you might get a low interest rate if your credit score is maintained well. That said, before you apply for a gold loan, evaluate the interest rates being offered by different lenders and choose the one that fits your finances and does not strain your finances.

Consider Tenure

Gold loan is a short-term loan. Hence, when applying for the same, consider the tenure of the loan. Choose the tenure wisely so that you do not have any difficulties while repaying and it does not put you under any stress in the future.

Know the Repayment Option

You will have several options to repay your gold loan such as EMIs, bullet payments and partial payments. Hence, choose the option that will go well with your finances and ensure that there is no default at the time of repayment. If so, it might impact your credit score negatively.

Non-Payment of the Loan

This could be one of the most critical factors to consider while you take a gold loan. What happens if you fail to repay your gold loan? It is to be noted that in such cases, the lender has the authority to auction your gold. Additionally, if the price of your gold drops due to market conditions, the chances are high that the lender will ask you to match the additional price of your gold. Hence, this is of the major factors you must consider while applying for a gold loan.

A gold loan is one of the ways to improve your credit score but it won't enhance your credit score immediately. You must follow healthy financial habits when you borrow credit and make timely repayments. However, taking a gold loan and not following healthy financial habits will only make your credit score worse.

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How to Check CIBIL Score for Free with Paisabazaar?

Step 1: Enter your mobile number

Step 2: Verify your number using the OTP

Step 3: Enter your PAN and basic details

Step 4: View your free credit score and get detailed credit report

FAQs

Will gold loan affect CIBIL Score?

Yes. Gold loan may affect CIBIL score and help you improve it if you make repayments diligently.

Is CIBIL Score required for gold loan?

Lenders do check your CIBIL score before approving your gold loan application. It might impact the loan terms and if the CIBIL score is good enough, one can get the loan at favourable terms.

How much gold loan affect CIBIL Score?

A gold loan of any amount may impact your credit score. If repayments are done on time, it will have a positive impact otherwise the CIBIL score might get impacted negatively.

What happens to my CIBIL Score if I do not pay back the gold loan?

If you fail to pay your gold loan, first, your credit score might fall. Secondly, the lender will have the authority to auction your gold and if your gold does not match market prices at that point in time, the lender will ask you to match the market price.

How much time does it take to improve CIBIL Score with a gold loan?

It cannot be defined since to improve credit score, there are other factors too that are being taken into consideration. One must keep paying his/her dues on time to improve their credit score.