CIBIL credit score is an important aspect of your financial profile and determines your creditworthiness. It is a three-digit number that reflects your credit history, repayment behaviour, and financial management skills. A gold loan is a type of secured loan that involves using gold jewellery or other gold items as collateral for the loan. The value of the gold rate determines the loan amount, and repayment terms vary depending on the lender. Gold loans are often used for short-term financial needs. Understanding how gold loans influence your CIBIL credit score can help you manage your finances and maintain a healthy credit score.
Important factors to know how gold loan influences your CIBIL credit score
Gold loan application
Whenever you apply for a loan with low gold loan interest rate, lenders conduct a hard inquiry to assess your creditworthiness. A hard inquiry is a process where lenders request your credit report from credit bureaus to determine whether your loan application should be approved. The occurrence of a hard inquiry is recorded in your credit report. A few hard inquiries in your credit report are acceptable as it is necessary to obtain a gold loan.
If your credit report records multiple hard inquiries within a short period, it could raise concerns about your creditworthiness. A hard inquiry is a credit check initiated by a lender or financial institution when you apply for credit or a loan. While a single hard inquiry may not significantly impact your credit score, multiple hard inquiries within a short time may lead lenders to view you as a high-risk borrower. Gold loan interest rate varies depending on the lender, loan amount, and loan duration.
Gold loan payments
After a lender approves your loan application, you must repay the loan according to the agreed-upon terms and conditions. Timely and consistent payments will positively impact your credit score, indicating to lenders that you are a responsible borrower. On the other hand, failure to meet loan obligations can significantly lower your credit score. Defaulting on a loan can severely damage your credit score and make it difficult for you to secure loans or credit in the future.
This is because defaulting on a loan indicates a lack of financial responsibility and a high risk of default, making lenders wary of lending to such individuals. It is essential to ensure that you fully understand the terms and conditions of the gold loan and are confident that you can repay it on time. Doing so can maintain a healthy credit score and increase your chances of obtaining credit.
Things to consider before taking a gold loan
The final approved loan amount for a gold loan is determined by the value of the gold pledged as collateral. The loan amount will increase proportionately with the purity of the gold. The lender will evaluate the gold’s actual value based solely on its purity and will not consider any additional stones or jewellery design.
Comparing interest rates for loans
The Gold loan interest rate is determined by the lender based on your profile, which can be influenced by various factors such as the loan amount, repayment period, and more.
Repayment Options for Loans
Equal monthly instalment repayment method, which allows you to repay your gold loan with low gold loan interest rate in fixed monthly instalments that include both the principal amount and the interest accrued. To help you plan your repayment schedule better, various financial institutions provide a user-friendly gold loan EMI calculator that lets you calculate your monthly payments based on the loan amount, interest rate, and repayment tenure.
Ensuring the reliability of the lender
It is important to exercise caution when availing of a loan and carefully consider the lender you choose. Avoid taking a loan from a jeweller or a small business because they may not be regulated and offer unfavourable loan terms that could put you in a difficult financial situation. Instead, a reputable, certified financial institution is the best choice.
Disbursement period for loans
When applying for a gold loan, it is essential to check that the lending institution offers swift funds disbursal and easy access to them for personal and professional purposes. The timely availability of funds can be crucial, especially in cases of emergency or urgent financial requirements. Therefore, opting for a lender that ensures a hassle-free and quick loan disbursal process is crucial.
If you are consistent in making timely repayments and ultimately paying off the loan on time, this can boost your credit score. Gold loan interest rate ranges from as low as 9.50% per annum to 28% per annum. Failing to make timely payments or opting for a loan settlement can harm your credit score if you have taken a gold loan. It is important for you to carefully comprehend the loan’s terms and conditions and take ample time to evaluate your options before making an informed decision.