Gold Loan or loan against a gold asset is a secured loan one can get by mortgaging their gold asset. As per the RBI guidelines, banks and non-banking financial institutions provide gold loans up to 90% of the value of the gold. Along with attractive rates which are significantly lower than a personal loan and other loan products. A gold loan is one of the few credit facilities that can be availed if you have a low credit score with minimum documents for identity and address proof.
An interesting fact about the gold loan is that while you don’t require to meet the specific eligibility criteria related to credit score as you avail of a gold loan, this still influences your credit score.
Curious about how this is one of the preferred choices for improving credit score? Here is everything you need to know.
Applying for a Gold Loan
As you apply for a gold loan with multiple lenders simultaneously, your credit score experiences a downfall. It is because as you apply, money lenders would access your credit report; thus, it gets reflected in your credit report.
What should you do?
Applying for a gold loan online provides one of the significant advantages that you can easily compare the interest rates of multiple lenders without hurting your credit score. It is convenient to check gold loan eligibility based on different factors for top banks and non-banking financial institutions.
What should you do?
- If you make repayments on time it indicates that you are a responsible borrower which ultimately builds the trusts. As you repay the loan at the determined tenure your credit score will eventually improve. Thus increasing your chances of approval of other loan products as well in the long term.
- On the other hand, if you even miss a single payment of your loan, it will be reported in the credit report, and thus your credit score will be affected negatively. Even missing your EMI for a day will decrease your credit score. In case you default for more than 90 days you will be termed an NPA (Non-Performing Asset), and thus it would be challenging to get a loan at reasonable rates, especially from other lenders. Also, lenders can sell your gold to recover the outstanding amount, thus causing huge losses.
How you can ensure to make timely payments of Gold Loan?
- Setting a reminder for your gold loan EMI
- Schedule auto deduction of payments.
Significance of having a good credit score:
A credit card determines the creditworthiness of the borrower and taking care of your credit score is essential because of the significant reasons as mentioned below:
- Having a good credit score ensures that you have access to attractive offers on your loan products and credit cards.
- If you have a good credit score, lenders also provide you loans at low interest rates, thus translating to lower costs.
- A good credit score allows you to get the benefits of higher credit limits on your credit cards.
- Also, borrowers who have a good credit score are eligible for pre-approved offers on loan products as lenders approve such loans that have a good credit history.
Thus, to ensure a higher CIBIL score with your gold loan, you must make your repayments as quickly as possible before the due date. If you miss a single EMI, do not let the outstanding amount piled up as you can turn into NPA. Which would ultimately decrease your chances of getting a loan in the future. On the reverse side, if you make all your payments on time. You can get access to various attractive offers on other loan products such as personal loans, home loans, credit cards etc. Therefore, don’t miss your chance to grab attractive offers on your credit products.