Gold Loan

Understanding the Impact of Gold Loan on Your CIBIL Score

Poonawalla Fincorp Team

1/7/25 5:10 AM | 2 Minutes

A Gold Loan is a widely preferred financial solution in India, which provides you with quick cash by leveraging your gold assets. Since it is a secured loan, lenders offer competitive interest rates, making it an attractive option. However, while taking a Gold Loan can solve urgent financial needs, you must understand its impact on your CIBIL score, which plays a vital role in future credit approvals. Read on!

What is a Gold Loan?

A Gold Loan is a secured loan where you pledge your gold ornaments or coins as collateral to obtain funds from financial institutions. The lender assesses the value of the gold and sanctions the loan amount accordingly, often ranging between 70%–90% of the gold’s market price.

Some key features of gold loans include:

Quick approval with minimal documentation.
Lower interest rates compared to unsecured loans.
Flexible repayment options, including EMI or bullet payments.

Since gold loans do not require a credit score for approval, they serve as a convenient financial solution for individuals with low or no credit history. However, repayment of the loan has a significant impact on your credit score. Here’s how.

How Gold Loans Impact Your CIBIL Score

The impact of a Gold Loan on your CIBIL score depends on how you manage your repayments. Here’s how it influences your credit profile:

1. Timely Repayment

Repayment behaviour is the most significant factor influencing your CIBIL score. The loan against your gold comes with flexible repayment structures, including monthly EMIs, bullet repayment, and overdraft facilities. If you make timely repayments, it positively impacts your credit score, showcasing your financial responsibility.

2. Default Payments

Missing payments or defaulting on your loan can severely damage your CIBIL score. Lenders report overdue payments to credit bureaus, which can reduce your score and make it harder to secure loans in the future.

3. Credit Mix Enhancement

A healthy credit profile includes a mix of secured and unsecured loans. Since gold loans fall under secured loans, having one alongside unsecured credit demonstrates financial stability and positively influences your score.

4. Loan Inquiry

Each time you apply for a loan, lenders perform a hard inquiry on your credit report. Frequent inquiries within a short period can lower your CIBIL score. Additionally, taking multiple gold loans in a short duration might indicate financial distress, which can negatively impact your credit profile.

5. Things to Consider Before Taking a Gold Loan

Before availing of a Gold Loan, it’s important to evaluate the following factors to ensure a positive impact on your credit score:

Interest Rates & Charges: Compare rates across lenders to secure the best deal and avoid excessive charges.
Repayment Terms: Choose a tenure and repayment option that aligns with your financial capacity.
Loan-to-Value Ratio (LTV): Opt for an LTV that suits your repayment ability to minimise risks.
Credit Score Monitoring: Regularly check your CIBIL score to track improvements and detect errors.
Alternative Options: Explore personal loans or overdraft facilities if they offer better terms for your financial situation.

To Conclude

Gold loans are a convenient financial product with minimal eligibility requirements, making them accessible to everyone. While they do not directly harm your CIBIL score, your repayment behaviour plays a crucial role in maintaining credit health. By making timely payments and managing your loan efficiently, a Gold Loan can serve as a stepping stone toward strengthening your credit profile. However, if you are looking to secure better loan opportunities in the future, apply to Poonawalla Fincorp’s Gold Loan for maximum benefits.

Frequently Asked Questions

1. Does taking a Gold Loan reduce my credit score?
No, taking a loan against gold does not automatically reduce your credit score. However, delayed payments or defaults can negatively impact it.

2 . How long does it take for a gold loan to reflect in my CIBIL report?
Typically, lenders report your loan details to CIBIL and other bureaus within 30–45 days of loan disbursement.
3 . Will closing a Gold Loan improve my CIBIL score?
Yes, closing a Gold Loan on time reflects positively in your credit history, improving your CIBIL score over time.

About the Author

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.

*Terms and Conditions apply

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