Effects Of Gold Loan On Your CIBIL Score & Credit Report

When one is short of cash and needs money quickly, whether to make a personal expense or for a business requirement, a gold loan can be one of the easiest and most efficient ways to borrow money.

A gold loan is essentially a collateralised loan in which the borrower pledges gold jewellery, or coins, against a loan from a bank or a non-bank lender.

A gold loan is very easy to avail, and lenders now typically offer to complete the entire application process online.

The best part about a gold loan is that a borrower’s credit score does not matter as long as the quality of the gold being offered as security meets some minimum standards laid down by the lender.

This basically means that even if a person has a less than average credit score, he or she can qualify for a gold loan.

The credit score, or the CIBIL score, is basically a three-digit number that private independent agencies such as TransUnion CIBIL, Experian and Equifax generate after analysing a borrower’s previous loans and repayments.

The CIBIL score ranges from a low of 300 to a high of 900. A higher score means a borrower has a good capacity to repay and has had a decent credit history. On the other hand, a lower score indicates a weak repayment history and tells the lender that sanctioning a loan to such an individual may be risky.

Can Getting A Gold Loan Impact The CIBIL Score?

Yes, it can. Whenever a borrower avails a gold loan, it can impact their CIBIL score, both positively as well as negatively.

A gold loan is also a form of personal loan and so it can hurt the borrower’s CIBIL score in case of a default or a delay in repayment of the principal or the interest.

Each time a borrower applies for a gold loan, the lender will check their credit history and this could lower their CIBIL score a wee bit.

If the borrower does not repay the gold loan and interest in time, their CIBIL score will be negatively impacted. This is because the lender will report the non-payment to the credit bureau.

If, on the other hand, the borrower repays on time, their CIBIL score can improve.

So, can one improve their CIBIL score by taking a gold loan? Yes, if a borrower makes timely repayments on their gold loan, their CIBIL score will improve over time.

Timely repayment will help a borrower who has a poor credit score. If they keep repaying on time, their CIBIL score will go on improving slowly.

Conclusion

As can be seen from the discussion above, although a borrower’s credit history does not determine their ability to avail of a gold loan, the loan itself can impact their CIBIL score.

As a borrower, you should ideally try and repay your gold loan in time. This will help you improve your poor credit score gradually over time.