A gold loan is one of the most affordable forms of secured credit conveniently available to millions of individuals across India. With little documentation and fast disbursal, it provides an immediate short-term fix in times of economic distress. While this golden form of credit is gaining immense traction, one common query that borrowers often ask is, “Will gold loan impact my CIBIL score? To grasp this concept completely, it’s important to examine what a gold loan is, how a credit score is calculated, and the impact that smart borrowing has on overall financial wellbeing.
Gold loans are secured, low-cost short-term financing options where collateral—gold jewelry, coins, or bars—guarantees repayment.
A gold loan is a secured loan in which you pledge your gold ornaments or coins to a bank or NBFC as collateral. Depending on the gold’s worth, lenders extend a higher loan amount, typically up to 75% of the prevailing value of the gold. The borrower pays the loan amount plus interest for a determined workforce on time, and gold is handed back to the borrower. Gold loans become the most favoured option in such emergencies, as gold loans can be taken without a good credit score which is mandatory in personal loans or credit cards.
What is a CIBIL Score?
The CIBIL score, provided by Credit Information Bureau (India) Limited, is a three-digit number ranging between 300 and 900 that indicates your creditworthiness. In Simple the higher the value of CIBIL Score meaning higher chances that you will easily get a loan or It is determined by your credit history, repayment behavior, Types Of Credits used, Credit worth% ratio, Loan Tenures as well as no of hard inquiries done by Money lenders.
Does availing a Gold Loan affect your CIBIL score?
So while yes, a gold loan does affect your CIBIL score, whether it is positively or negatively will depend completely on how you manage the loan. Here’s a closer look at each of the scenarios:
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By paying back your gold loan EMIs or bullet payments on schedule, you are showing a good repayment capacity which will earn you positive marks on your credit score. As long as students and parents keep making timely repayments, every one of those repayments is reported to the credit bureaus which helps these students and parents build a strong repayment history. While a gold loan is technically a secured loan, showing financial discipline by paying all your dues on time will improve your CIBIL score in the long run.
Missed Payments & Defaults Destroy Your Credit
Your Credit Score Is Based on Your Credit History
Similar to any other loan, if you miss your payments or default on a gold loan, it has a negative impact on your overall credit profile. If you miss the repayment of your loan Emi on due date the lender will report your default to cibil. This raises the utilization rate and lowers your score, and it causes a negative mark to appear on your credit history. When the credit check is carried out if this delay is extended and the lender is required to auction off your gold to retrieve the consistently, the concern that occurs in regards to boosting your credit history could be even more extreme and longer-term.
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So when you fully repay your gold loan, make sure to confirm the lender reported the status to the credit bureau as “closed.” An open loan you’ve paid off can harm your score for this reason, though it is reporting incorrectly. Always retrieve the No Objection Certificate (NOC) or loan closure letter from your lender and check your credit report to ensure that the loan reflects as closed.
Too many loan applications can be damaging
So if you were to take out gold loans from different lenders in a matter of days, each one of these institutions will conduct a hard inquiry into your credit profile. A dozen of the former can be a sign of credit-seeking behavior and can lower your score by a few points. In order to prevent this, try to keep your loan applications to a minimum and pre-compare offers before you apply.
Why Gold Loans Are Viewed As Such
This last point is significant because since gold loans are secured loans, lenders can be more flexible with credit requirements for approval. Even people with bad or no credit history can get money from a gold loan. That doesn’t imply that repayment isn’t important. Once a loan is issued, how you repay it goes into your credit history.
How a Gold Loan Can Help You Create or Increase Your CIBIL Score
People having little or no credit history often take help from gold loans to create a positive CIBIL score.Here’s how you can take advantage of it.
- Choose a smaller loan amount that you know you can easily pay off within the duration.
- Select your preferred repayment method—monthly EMIs, bullet payments, or interest-only repayments.According to your financial capability, you can select the method that suits you best.
- Repay them all fully and promptly. Establishing automatic reminders or ECS requirements can prevent due dates from being overlooked altogether.
- Don’t require pre-closure unless paid in full. Some borrowers who pre-close only pay accrued interest, and this doesn’t look as good on your credit report. Consistently apply this change, to ensure that principal is paid in full before the date of closing.
5 Common Gold Loan and Credit Score Myths, Busted
Myth 1: Gold loans aren’t recorded in your CIBIL score.
Truth ╂ Every gold loan disbursement and repayment information is reported to all major credit bureaus and reflects in your credit report.
Myth 2 : Because it’s collateralized, it won’t impact your score.
Secured or otherwise, how you pay back any type of credit affects your overall repayment history and therefore your credit score even with a secured credit card.
Myth 3 : It doesn’t matter if you repay early.
Truth: Early and timely repayment of a gold loan, like any other debt obligation, reflects in your financial behaviour and increases your score.
Here are some tips on how to use gold loans to your advantage.
- Don’t borrow more than you can afford to pay back. It’s deadly when you over-borrow, putting undue stress on your financial situation and raising chances of default.
- Monitor your pay-back schedule and track how much you intend to spend. As such, missing just one payment can have a significant impact on your score.
- Check your credit report every few months. Once you’ve closed your loan, make sure the status has been updated appropriately.
- Stop the practice of rolling over loans time and again. Letting your loan tenure stretch out again and again can be a red flag to future lenders that you are in financial distress.
Conclusion
A gold loan, if taken and handled in a responsible manner can act as a safe credit instrument and aid in increasing your CIBIL score. It boasts the double benefit of having the lowest eligibility threshold and fastest rate of fund disbursal. The secret to addressing it is to start treating it with the same seriousness as any other loan. Timely repayments, responsible borrowing, and careful planning are key if you want the gold loan’s impact on your credit score to be a boon, not a burden. Failing to make your repayment obligations can lead to the forfeiture of your precious gold holdings as well as a tarnished credit history. Before choosing a gold loan, therefore, read the fine print, strategize your financials and ensure that you fulfill your repayment obligations firmly.