Though credit score is a significant parameter in receiving loan approval, the same does not apply while availing of a gold loan. As a gold loan is secured against high-value gold items, lenders do not have to scrutinise the borrower's CIBIL score to approve loan applications.
The credit option is ideal for mitigating urgent financial crunch and proves beneficial for borrowers with a subpar credit score. However, gold loan repayment has a significant impact on borrowers' credit scores. Hence, borrowers must be mindful of the EMI payments. In case borrowers want to know how does gold loan affects CIBIL score, they must refer to the sections below.
A gold loan can seriously impact the borrower's CIBIL score if not repaid on time. Unlike other credit options, gold loan help borrowers boost their CIBIL score. Individuals with substandard CIBIL scores can opt for a gold loan, meet their urgent financial requirements and repay the loan principal on time to enhance their credit score. However, there is a notable effect of gold loans on CIBIL scores; hence it is important for borrowers to be disciplined with their credit.
Late repayment of loan amount or defaulting on the same can significantly bring down the CIBIL score. In addition, such repayment history can lead to the rejection of future loan applications.
Lenders are conditional owners of borrowers' gold items, so they are likely to disburse loan amounts without analysing the borrower's credit score. Moreover, as the credit option is disbursed against gold items, lenders are more concerned regarding the security and purity of the pledged collateral than the CIBIL score.
However, a healthy credit score of 750 and above will give borrowers an upper hand in negotiating for better loan terms. It can also help them fetch lower interest rates.
Just like any loan option, failing to repay the gold loan amount will definitely affect the borrower's credit score. Initially, lenders can send reminders regarding missed EMI payments; later, they will auction the gold to retrieve loan amounts. Hence, borrowers must set reminders regarding the same.
The time that it takes to improve CIBIL score with a gold loan depends on the repayment spree of the borrower. It also depends on how disciplined borrowers are with loan repayment. However, on-time repayment will begin to enhance one's CIBIL score, making one eligible for high-value loan amounts at a competitive interest rate.