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How does a Gold Loan Affect your CIBIL Credit Score?

How does a Gold Loan Affect your CIBIL Credit Score?

finance
August 2, 2022
5 min read
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How does a Gold Loan Affect your CIBIL Credit Score?
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Borrowing a gold loan can impact your CIBIL credit score as it is a type of personal loan that you may need to meet your financial requirements. Although you provide gold as a form of financial security and borrow money against it, a gold loan affects your CIBIL credit ratings. In short, whenever you take out any form of credit product, it affects your CIBIL credit score. 

When it comes to secured loans, gold is one of the most popular options among Indians. The NBFCs, along with public and private banks, offer gold loan. A gold loan allows you to get money against the gold that you provide at a fair interest rate. However, the interest rate that you may be offered on the gold loan will depend on your CIBIL credit score. 

A gold loan can lower your CIBIL credit score if you do not make the repayments on time. Your CIBIL score will increase when you make your gold loan payments on time and in full. 

If you are thinking of borrowing a gold loan to improve your CIBIL credit score, you can use this option. Let us find out how you can use a gold loan for your financial gains.

Benefit of Borrowing a Gold Loan to Improve CIBIL Credit Score

When you borrow a gold loan, the gold is used as a form of collateral by the lender or NBFC. As the loan that you are borrowing is a secured loan, the interest rates on the loan may be competitive. Because if you fail to repay the loan, the lender will have the security (gold) to recover the money lost. 

A gold loan allows you to repay the debt over time. You can spread out the repayments into equated monthly instalments, which will make it easier for you to repay on time each month. When you make the repayments against the debt that you have taken on, it impacts your CIBIL credit score. If you are someone with a poor credit score, you can certainly observe some improvement on your credit score gradually. 

However, ensure that you pay back the gold loan on time and in full to avoid any negative influence on your CIBIL credit score. 

How to Get a Higher CIBIL Credit Score with a Gold Loan?

Even if you find yourself unable to pay a few EMIs for the gold loan, be sure you don't let the amount accumulate to the point where the lender is forced to sell your collateral - gold items - in order to recoup the remaining loan balance. Since gold loans are one of the most practical types of secured loans, some lenders might be flexible when it comes to repayment or missed/delayed EMIs. You can also borrow money from close friends, family members, or relatives in this case to cover the necessary EMI payments for the gold loan. This will guarantee that you do not lose your priceless asset, and it will make it simpler for you to repay the money you borrowed from family or friends than the bank.

Experts advise borrowing a gold loan only if you have a consistent source of income that is more than enough to pay back the gold loan balance without significantly impacting your usual budget, expenses and CIBIL credit score. It is crucial to make sure you have the capacity to return your loan quickly and on time in order to maintain a high CIBIL score and prevent having it reduced by defaulting on or paying the loan amount late.

FAQs Related to Gold Loan and CIBIL Credit Score

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Will gold loan affect CIBIL score?

Yes. A gold loan will affect your CIBIL credit score. When you apply for a gold loan, your credit profile will be reviewed by the lender with a hard credit check, which will reduce a few points from your CIBIL credit score. Also, if you do not pay back the gold loan on time your CIBIL credit score will go for a toss. Similarly, making timely repayments on your gold loan will improve your CIBIL credit score. 

What happens to my CIBIL credit score if I do not pay back the gold loan?

If you do not pay back the gold loan, your CIBIL score will be lowered as the lender will report non payment or missed payment status to the credit bureau. Also, there is a chance that the gold you had provided as form of security will be auctioned by the lender to recover the unpaid balance on the gold loan you had taken out. 

How much time it takes to improve CIBIL score with a gold loan?

The time taken to improve your CIBIL credit score with a gold loan cannot be defined as it depends on a lot of other factors. Keep paying the debt on time and in full if you want to see your CIBIL score improve. Whenever you make a repayment, the lender reports it to the credit bureau which gets reflected on your CIBIL score.