All it takes is one unforeseeable event to disrupt the delicate balance of one’s finances. Unfortunately, this is true in the case of the Bhatt family. After Mr. Bhatt’s annual health check-up revealed an underlying health condition, he began worrying about arranging funds for treatment. Until recently, he never considered purchasing health insurance – after all, he is fit as a fiddle, or so he was last year.
With every passing week, his condition worsened, and the urgency for treatment grew. Deciding to take matters into her hands, Mrs. Bhatt gathered all her gold jewellery and approached a bank. Being a humble housewife with no prior credit history, she applied for a gold loan.
Lo and behold Mrs. Bhatt saved the day – and her husband! The loan was sanctioned with the gold ornaments in the bank’s custody as collateral.
This narrative shows that those without CIBIL scores or recorded credit history can easily apply for a loan against assets like gold. During a liquidity crunch, your yellow metal investments can shine through! Instead of selling it off in a panic, you can wisely avail a loan against it.
Gold Loans: Everything You Need to Know
While investments in gold are considered traditional or old school, it’s a lucrative way to diversify your portfolio. Moreover, they qualify as collateral for secured loans during an emergency. That said, here’s what they entail.
Gold loans are a type of secured loan that is sanctioned based on holding the asset as collateral or security. These assets can be in jewellery or bar form, per the required standard. The acceptable karatage for these loans is between 18-24 karats. Depending on the market value of the gold, the loan amount sanctioned will be up to 75-80% of the value.
In addition to needing minimal documentation, banks and other lenders usually don’t inquire about your credit history or CIBIL score. However, a gold loan could significantly improve these conditions. At the same time, poor repayment of the loan and other factors could impact your overall score.
Furthermore, there’s an upper and lower cap-off for the amount sanctioned via a gold loan. The min. is ₹1,500, and the max. is up to ₹1.5 Crores. Though, this largely depends on the amount of loan provided as collateral.
Factors that Affect your Credit Score
Planning on applying for a gold loan? Here are a few factors that might affect your CIBIL score.
- Hard Enquiries
Some people mistakenly believe that multiple gold loan applications increase their likeliness of getting one approved and sanctioned. However, it does quite the opposite! Too many applications may lead to hard enquiries conducted by the bank or lender. These enquiries appear in your credit report. Not only does it dwindle your scores, but lenders may also become more reluctant to sanction loans.
During a financial emergency, your desperation might appear as credit hungriness. Banks and lenders are less likely to sanction loans in such cases. Consider applying for loans via banks that provide eligibility criteria to verify these details beforehand.
- Credit Mix
Much like diversification diminishes the risk of massive losses, a healthy credit mix of secured and unsecured loans can improve your credit score. While unsecured loans require a high CIBIL score, a secured loan only needs substantial collateral. The ease of such loans makes it more convenient for borrowers and lenders and helps the former diversify their credit mix.
The simple eligibility criteria require no income proof and offer the ease of online gold facilities and higher loan amounts with increasing gold rates.
- Repayment Schedule
Even though gold loans don’t require a credit score, it’s still necessary to repay the loan amount promptly. Paying off these EMIs can drastically improve your CIBIL score. On the other hand, poor repayment behaviour due to delayed or missed payments can drag down your scores.
If you’re struggling to manage the loan repayment EMI, approach the bank or lender and opt for a longer tenure. It will reduce the EMI amount and make repayment more manageable.
- Prepayment Charges
Another great way to improve your credit score is to prepay the amount before the end of the loan tenure. With every bonus or windfall, consider using a small portion to repay the loan to close the account sooner. But, before you decide to close the loan earlier, check for prepayment charges. Ignoring this could lead to additional expenses over the usual amount owed.
- Loan Settlement
After clearing all outstanding dues of your gold loan, make sure the bank or lender provides a formal closure certificate. Moreover, ensure that the account status mentions “Closed”, not “Settled”. The latter means the remaining loan payment was settled for a lower amount due to the poor repayment abilities of the borrower.
This statement will appear on your credit report, potentially deterring other lenders from sanctioning loans. Also, it could lower your credit score by a few points.
So, the next time you encounter a sudden need for money, don’t sell off your gold in panic! Use Mrs. Bhatt’s quick thinking and approach a bank or lender for a gold loan. It’s easy, requires little to no documentation and needs no prior credit history!
Looking for a safe and reliable gold loan lender? Visit Bajaj MARKETS and avail the necessary funds today!