How Does Gold Loan Affect Your Cibil Score in India

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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.

How Does a Gold Loan Affect CIBIL Score

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.

Role of Credit Score in Gold Loan

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.

Important Factors to Consider in Getting a Gold Loan Sanctioned

Borrowers must be mindful of the following parameters in order to get approval for a gold loan.

Loan to value

The loan amount borrowers will receive depends on the prevailing worth of gold. Hence it is important to gauge the current market value of gold.

Net weight of gold

It is important for borrowers to obtain the net weight of the gold items or ornaments separately. This is because lenders won't consider the weight of other precious stones and gems embedded in the gold jewellery.

Purity of gold

The purity of gold also influences the valuation of gold. Purity of gold must be 22 carats, which is the standard purity rating of gold, to receive approval for a loan application.

Repayment options

Borrowers must be well acquainted with the repayment options. As per financial status, they can choose to repay only the interest during loan tenure, rest they can pay towards the end of the loan term.

How to Improve CIBIL Score for Gold Loan

Gold loan proves to be the ideal financing choice for those who want to improve their CIBIL score.

Regular and swift payment

As mentioned above, gold repayment affects CIBIL score. Hence borrowers must strive to make a timely loan repayment. Initiating EMIs on time increases creditworthiness, thereby raising credit scores, which in turn enhances one chance to receive faster loan approvals in future.

Right loan amount

Another parameter that must be taken into consideration is the right loan amounts. Borrowers must go for loan principal that they can afford to repay on time. Defaulting on EMI pay-outs will have an adverse impact on CIBIL score.

Limit credit accounts

Borrowers must keep a check on the credit accounts. For each loan application, lenders will conduct a hard enquiry, affecting CIBIL score. Hence, borrowers must avoid making too many loan applications at the same time.

Early repayment

Another effective way to improve CIBIL score is to make early repayments. Foreclosing the loan amount before time reflects financial behaviour, upgrading their CIBIL score.

To sum up, a gold loan is a credit option that allows one to pledge their gold items, receive a considerable loan amount, and sail through urgent financial needs. It helps individuals to roll out their businesses and make up for education fees, medical costs etc. The repayment of the sanctioned credit impacts loan terms if individuals wonder how gold loan affects CIBIL score. Albeit the gold loan approval does not depend on the borrower's credit score, the repayment of loan principal can affect CIBIL score.

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FAQs on How Gold Affect Cibil Score

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.