Gold Loan Affect On Cibil Score

Last Updated: 15 Oct 2024

For individuals preparing to submit a loan application, a credit score is of utmost importance. It aids the lender in determining the borrowers’ trustworthiness and how effectively they handle credit repayment. A secured loan known as a “gold loan” can be obtained by providing gold as security.

Borrowers have a better chance of having their loan authorized swiftly because the lending banks and NBFCs have security against the loan. Credit scores are not necessary to apply for a gold loan because the gold items are the security. The primary requirement for receiving an expedited loan approval is the gold’s purity. You must also meet the quick gold loan eligibility requirements for age, weight, and quantity of gold jewellery.

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What is CIBIL score?

A credit score simply reflects your loan repayment history and your track record of timely credit payments. Your credit score is favourably impacted by on-time payments, however it can be negatively impacted if you make such payments carelessly. You need to be aware of the important factors on how a Gold Loan influences your CIBIL score.

A credit score, which reflects a person’s creditworthiness, runs from 300 to 900. It aids the lender in examining your credit history, repayment habits, and level of financial management. Any value between 700 and 900 is considered to be good, boosting the borrowers’ chances of having their loan applications approved. Before processing any kind of loan, it is now required by the RBI to take a person’s credit score into account. Nonetheless, the banks use gold assets as a form of security. So, you can rapidly obtain the loan amount approved even if your credit score is low.

The more around 900 their CIBIL Score is, the better. Because it is thought that a person’s past credit conduct is a good indicator of their future behaviour, the CIBIL Score serves as a reflection of a customer’s creditworthiness, making a high CIBIL Score essential. The RBI now mandates that a person’s credit score be taken into consideration prior to processing any loan.

How does a gold loan affect CIBIL score?

• Applying for gold loan:

  Even just requesting a gold loan will harm your credit score. When you apply for a gold loan or any other sort of credit, the credit bureaus are contacted and your credit history is sought. This procedure is referred to as a “hard inquiry.” They will then determine whether to accept or reject your application. Each hard inquiry will reflect in your credit record, and each one will lower your credit score. Avoid having several queries show on your credit report, especially within a short period of time, if you don’t want to appear credit-hungry.

• Repayment of gold loan:

  Making timely repayment of the loan amount might assist you start establishing a better history of on-time payments, as we previously indicated that your repayment history has an impact on your CIBIL score. You would be required to pay a certain amount each month if you choose the EMI (Equated Monthly Installments) option to repay the gold loan amount. This monthly payment will consist of a proportion of the principal and interest amounts. Your credit score will rise if you pay your EMIs on time, enhancing your opportunity to obtain future loans approved quickly and at a better rate. But, your credit score may suffer significantly if you default or fail to pay the debt in a timely manner.

• Take different types of loans:

  You can create a great credit score with a variety of credit. It entails having personal loans in your overall financial profile, both secured and unsecured. When you offer your gold as collateral for the loan, a gold loan is a secured loan. Also, your chances of getting a loan approved will be better if you have more secured loans than personal or unsecured loans. Your credit score will be impacted by the gem loan’s addition of a particular credit combination to your profile. To improve your credit score, be sure to make the required repayments on time.

• Limit credit accounts:

  You should restrict your credit applications even when opening a new credit account raises your overall credit limit. Keep in mind that every time you apply for a new credit account, a hard inquiry is made, which has an impact on your CIBIL score. So, it is advisable to delay applying for new credit accounts or loans.

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Regular repayments might increase your gold loan CIBIL score, however several loan queries can decrease it. Defaulting on a gold loan might result in a legal notice, extra expenses in the form of late payment fees, and other penalties.

If your busy schedule causes you to frequently forget when your loan payments are due, set a reminder on your phone or computer. Another measure you may take to avoid late payments is to ask your lender to withdraw the money immediately out of your bank account.