How Does Gold Loan Affect Your CIBIL Score

Gold loan is one of the most popular credit options available in India. It enables you to borrow a large amount at low interest rates. Gold’s value is market-linked and has seen a substantial rise over the past few years. This helps reduce the risk associated with borrowing for the lender.  It incentivises them to offer favourable loan terms, making the borrowing cost-effective and easy to manage. It can be a great way to boost your credit score and increase your chances of getting credit easily in the future as well. However, failing to manage your gold loan’s repayments well could hamper your score quite severely. Let’s understand the implications of your gold loan on your CIBIL score in detail.

Here are some ways in which your gold loan impacts your CIBIL score:

• Your gold loan account is reflected in your CIBIL report, affecting your score

• Making regular EMI payments showcases financial discipline, improving your score

• Late EMI payments are flagged as defaults, negatively impacting your CIBIL score

• Failure to repay the loan results in a significant score drop and makes future borrowing difficult

• Adding a gold loan can diversify your credit portfolio, positively affecting your score if managed responsibly

• Even though gold loans are often short-term, their repayment influences your score for an extended period

Here are the major consequences of missing your gold loan repayments that you should be aware of:

• Missed or delayed payments are reported to credit bureaus, leading to a significant decrease in your CIBIL Score

• Lenders impose penalties and additional interest on overdue amounts, increasing the total repayment obligation

• Each missed payment is recorded on your credit report, affecting your creditworthiness for future loans

• If repayments are consistently missed, the lender may auction your pledged gold to recover the outstanding loan amount

• A poor repayment track record makes it harder to secure new loans or credit facilities, and lenders may impose higher interest rates

• In extreme cases, lenders may initiate legal action to recover the dues, adding further stress on your finances

Here are some ways in which your gold loan repayment can help enhance your CIBIL score:

Easier Approval for Credit

Since gold loans are secured, they are easier to obtain, even if you have a low or no credit score

Opportunity to Build Credit History

If you are new to credit, a gold loan helps establish a credit record, which is crucial for improving your CIBIL Score

Positive Impact from Timely Repayments

Making regular payments on your gold loan boosts your CIBIL score, as it shows responsible credit behaviour.

Diversification of Credit Profile

Adding a secured loan like a gold loan to your credit mix improves your overall credit profile, which can positively impact your score

Lower Risk of Over-borrowing

Gold loans offer flexibility with manageable loan amounts, reducing the chances of default and supporting consistent repayments

Quick Credit Score Recovery

Consistent repayment of a gold loan can help recover or improve your CIBIL score faster than unsecured loans

Using a gold loan strategically can help improve your CIBIL Score. Here are some practical steps to follow:

Make Timely Payments

Ensure you repay your EMIs or interest on time. Consistent, timely payments reflect positively on your credit report and boost your CIBIL Score.

Analyse Your Loan Terms

Understand the repayment terms, including interest rates, tenure, and penalties. Choosing terms that align with your financial capability helps you avoid missed payments.

Check Your CIBIL Report Regularly

Review your credit report periodically to monitor your score and track any changes resulting from your gold loan repayments. This helps you stay informed about your credit health.

Rectify Errors in Your CIBIL Report

If you notice any inaccuracies in your credit report, such as incorrect loan details or repayment history, report them immediately to the credit bureau. Correcting these errors can improve your score.

Avoid Over-borrowing

Only borrow an amount you can comfortably repay. Over-leveraging can lead to repayment difficulties and negatively impact your credit score.

Maintain a Healthy Credit Mix

A gold loan adds a secured loan to your credit portfolio. Balancing secured and unsecured loans demonstrates diverse credit management, which can positively influence your CIBIL score.

 

Following these steps while managing your gold loan can lead to a significant improvement in your CIBIL score over time.

Before opting for a gold loan, it’s essential to evaluate various factors to ensure they align with your needs and repayment capacity. Here are some key considerations:

Interest Rates

Compare interest rates across different lenders to find the most affordable option. Even a small difference in rates can significantly affect your overall repayment amount. On Bajaj Markets you can get a gold loan at interest rates starting as low as 8.88% p.a.

Loan-to-Value (LTV) Ratio

Understand the LTV ratio offered by the lender, which determines how much loan you can get against the value of your gold. The higher the LTV, the more funds you can access, but it may come with higher interest rates. As per RBI guidelines, lenders can offer an LTV of up to 75%. This means that you can borrow up to 7

Repayment Tenure

Choose a repayment tenure that suits your financial situation. Shorter tenures may reduce interest costs but require higher EMIs. Meanwhile, longer tenures offer smaller EMIs but increase the overall interest payable.

Processing Fees and Other Charges

Be aware of additional costs such as processing fees, prepayment penalties, and late payment charges. These can add to the overall cost of the loan.

Gold Evaluation Process

Check the lender's process for evaluating your gold. Ensure they follow transparent practices and provide a fair valuation. The process must be carried out by a professional and you must be present at the time of the asset’s appraisal. Many lenders provide doorstep services for the same, which can make the process much more convenient.

Repayment Flexibility

Look for lenders offering flexible repayment options, such as bullet repayment or EMI-based plans. Choose a method that best fits your financial capability and requirements. You can also check the terms for prepayment and the associated charges to create a better repayment strategy.

Risk of Gold Auction

Understand the lender’s policy on gold auctions. If you fail to repay the loan, your pledged gold may be auctioned, so ensure you’re confident about your repayment ability. Ensure to consult a professional financial advisor in case of any doubts. 

Reputation of the Lender

Select a reputable lender with a track record of customer satisfaction and fair practices. For this, you can check our website to see the various offers provided by prominent lenders in India. Check customer reviews and consult your friends and family before deciding on a lender.