Will Taking a Gold Loan Affect My CIBIL Score in India?

1. Introduction

• Brief overview of gold loans in India: Gold loans are one of the most famous forms of loans available in India. These are wisely availed by people because they are easy to avail, provide quick liquidity injection to those who need the funds urgently and attract a lower interest rate compared to traditional forms of lending like personal loans.

• Why borrowers worry about CIBIL scores: CIBIL score is a type of credit score which is an indicator of how responsible the borrower is when it comes to loans. It reflects the borrowing habits, repayment record, and any default on loans. Generally, at the time of assessment, the lenders take the borrower’s CIBIL score into consideration to determine the risk associated with lending to the said borrower, and take a lending decision.

• Purpose of the article: The purpose of this article is to explain what a credit score is and the real impact of gold loans on credit scores

2. What Is a CIBIL Score?

• Definition of CIBIL score: CIBIL score is a score between the range of 300 to 900, which signifies the risk of lending to a certain borrower. The score is calculated based on various parameters such as the number of open loans, missed or delayed repayments, or default.

• Score range and what it represents: The CIBIL score ranges between 300 and 900, which signifies the risk of lending to a certain borrower. A higher score represents better borrowing habits, which are desirable by the lenders and vice versa.

• Why CIBIL score matters for loans and credit cards in India: CIBIL score essentially represents the risk associated with lending to a specific borrower. A higher CIBIL score means healthy borrowing and repayment habits, and vice versa. It is instrumental in making lending decisions.

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3. Is a Gold Loan Reported to CIBIL?

• Whether gold loans are reported to credit bureaus: All lenders report the application as well as repayment to the credit bureaus. This is to ensure that he individual’s borrowing record is maintained without any discrepancies, which eases future lending decisions.

• Difference between bank and NBFC reporting: Bank and NBFC reporting do not vary. All loans are reported to the credit bureaus by a specific date every month to ensure consistency in the records.

4. How Taking a Gold Loan Can Affect Your CIBIL Score

4.1 Positive Impact

• Timely repayment and improved credit history: Timely payment of interest and loan repayment indicates healthy borrowing by the borrower and hence improves the CIBIL score of the said borrower.

• Useful for first-time or low-credit borrowers: Gold loans, unlike other forms of loans like personal loans, do not require a strict credit score requirement. Since gold loans are backed by gold collateral, the lenders do not require a minimum credit score. Hence, availing such loans are repaying on time improves credit score.

4.2 Negative Impact

• Missed EMIs or delayed payments: Missing EMIs or delayed repayments hurt the credit score of the borrower. Hence, it is essential to borrow and repay responsibly.

• Loan default or settlement: Loan default or settlement of loan can also have a negative impact on the borrower’s credit profile and CIBIL score.

• Multiple gold loan applications in a short period: Multiple hard credit inquiries signify that the borrower is in dire need of funds; however, they are not being lent to by the lenders.

5. Gold Loan vs Other Loans: CIBIL Score Impact Comparison

• Gold loan vs personal loan CIBIL impact: CIBIL score gets updated on a monthly basis. Both gold loans and personal loans are reported in the CIBIL report, and the impact on missed repayment is typically comparable.

• Gold loan vs credit card borrowing: Gold loans and credit cards are reported to the credit authorities. A delayed payment or a default on either can result in a negative impact on the borrower’s credit profile and vice versa.

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6. Tips to Maintain or Improve CIBIL Score with a Gold Loan

• Pay EMIs or interest on time: Paying the EMIs and any applicable interest payments on time is essential. Doing so will ensure that your repayment record is perfect, which will help avoid any unwanted remark on the credit profile, and timely payment also helps avoid any penalties or risk of collateral loss at auction.

• Choose the right repayment option: Choosing the right repayment plan is essential. By doing so, you can ensure that the repayment is made easily, and you’re not missing any repayments. Timely repayments can result in an improved CIBIL score.

• Avoid over-borrowing: Over-borrowing increases pressure on the borrower at the time of repayment, and quite often results in a default. This has a direct negative impact on the borrower’s loan repayment record and can negatively impact the credit score.

• Check your CIBIL report regularly: Checking the CIBIL report regularly enables the individual to spot any discrepancies and also track any reports on delays in repayment.

7. Common Myths About Gold Loans and CIBIL Score

• “Gold loans don’t affect CIBIL score”: It is one of the biggest myths. All loans are reported to the credit bureaus. Any delay in repayment or default on a gold loan can affect the CIBIL score of the borrower.

• “Defaulting won’t matter since gold is pledged”: This, too, is a big myth. Defaulting on a gold loan can result in both the auction of gold as well as a negative remark on the credit profile of the borrower.

8. Frequently Asked Questions (FAQs)

• Does gold loan affect credit score?

Availing credit of any type is dependent on the borrower’s credit score, and the outcome of the loan also has an impact on the credit score. Timely repayment will improve the credit score; however, missed/delayed repayments or default can result in a negative impact on the borrower’s credit score.

• What happens to my CIBIL score if I default on a gold loan?

If you default on a gold loan, then your gold collateral will be auctioned to recover the lender’s money. Also, the information of default is also reported to the credit bureaus like CIBIL and Experion, and the same will be reflected on the borrower’s credit profile.

• Can I get a gold loan with a low CIBIL score?

Although many types of loans require a strict CIBIL assessment, such is not the case with gold loans. Since gold loans are collateral-backed loans, the lenders usually don’t have a minimum criterion when it comes to the CIBIL score requirement. No CIBIL requirement is one of the key features of gold loans by reputed lenders like indiagold, which allows people with no credit history or a low credit score to easily avail gold loans.

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