Effects Of Gold Loan On Your CIBIL Score And Credit Report

Does a gold loan affect your cibil score? A gold loan may improve your CIBIL score depending on the factors of how you take it and plan your repayments. Visit IIFL Finance to know more!

20 Oct,2022 16:46 IST 338
Effects Of Gold Loan On Your CIBIL Score And Credit Report

In India, gold is an integral part of our culture. Be it a wedding or a festival, almost every small and big occasion is celebrated with gold. Practically every Indian household owns gold in the form of jewellery. Gold symbolises luck and prosperity. Furthermore, the value of the gold does not end here.

Gold is a tangible asset and, as a valuable metal, it can be used to take a loan at times of financial uncertainties.

Gold Loan And CIBIL Score

A ‘gold loan’ is essentially is a secured loan where the borrower pledges the gold in possession to a lender on a temporary basis. In exchange, the lender offers a sum of money based on the value of the pledged gold. Typically, lenders sanction an amount lower than the value of gold to hedge against any risks of a drop in gold prices.

Since a gold loan is secured debt, lenders usually do not depend upon the borrower’s CIBIL score, or credit score, before approving the application. But the loan itself can impact the CIBIL score and the credit report, which is a record of an individual’s credit and loan-related information over a considerable period of time.

A gold loan is the easiest and fastest way to secure a loan for all short-term requirements. Though there are many jewellers and small-time lenders who readily offer cash against gold, it is better to choose a bank or a non-banking financial company (NBFC) for gold loans.

The process of gold loan starts with the process of loan application in a bank or an NBFC. Once a lender accepts the loan application and is satisfied with the repaying ability of the borrower, the deal is finalised.

The interest rate on gold loans varies from lender to lender. Lenders also charge a nominal processing fee for the loan application. Borrowers should also check the penalties for late repayment and prepayment charges of the loan.

The loan is to be repaid as per the decided terms and conditions of the loan agreement. Usually, borrowers have the freedom to choose the repayment for a gold loan as per their convenience.

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Effects On CIBIL Score

The CIBIL score is a reflection of the creditworthiness of a person. It is a three-digit number, based on the past credit and loan behaviour of the borrower, that measures his or her credit health.

The different ways a gold loan can alter the CIBIL score and the subsequent credit report are as follows:

• Gold Loan Application:

When a borrower applies for a loan, the lender makes an inquiry. These inquiries are of two types—hard and soft. In hard inquiries, the lender makes a request for the credit report from the credit bureaus. Soft inquiries do not get reflected on the credit report and do not impact the credit score.

However, every hard inquiry is reflected in the credit report. Since hard inquiries tend to have a greater impact on the credit scores of people with a short credit history, a hard inquiry can impact the CIBIL score.

• Loan Repayments:

In gold loans the gold jewellery is used as a collateral. If the borrower fails to repay the loan, it adversely impacts the credit report and brings down the CIBIL score. Even a day’s delay in timely repayment of the scheduled monthly amount gets documented with all credit bureaus in India.

Moreover, the lender recovers the money by selling or auctioning the pledged gold. Auctioning of the gold should be avoided as it has a negative impact on the CIBIL credit score.

• Positive Impact:

If the borrower pays back the loan as scheduled, it helps improve the credit score. This, in turn, helps the person at the time of future loan requirements.


When situations are uncertain, taking a dip into personal savings may not be a wise solution. Instead, pawning idle gold jewellery to get a loan can be a good alternative.

Of late, many Indians have resorted to pledging the unused household gold in exchange of loans to fund their expenses. The biggest benefit of a gold loan is that it allows one to use the assets without suffering a loss.

While gold loan approval does not depend on the credit report or the CIBIL score, failure to make repayments on time can bring down the CIBIL score substantially.

IIFL Finance is one of the most trusted names in the financial services sector that offers different types of loans, including gold loans. Like most lenders, IIFL Finance approves a maximum loan of up to 75% of the market value of gold depending on its quality.

IIFL not only offers the best value of the gold, but its customer-oriented process also makes the loan application process a hassle-free experience. Additionally, for instant loan approval, customers can log on to IIFL Finance website to fill up an online loan application.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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