A lender's decision to offer you a loan or credit largely depends upon your creditworthiness which is majorly reflected by your credit score. The higher the score, the greater are the chances that your loan will be approved and on better terms. Read on to understand how your credit score is affected in the case of a gold loan.
Despite having a regular income and savings, there may be a money crunch for an emergency or other crucial expenses such as foreign education, a wedding, etc. Though smaller amounts can be managed through credit cards, you may need a loan in other cases. Among the different types of loans offered in the market, a gold loan comes with simple documentation, attractive interest rates, and quick disbursal. Let’s find out more about gold loans.
What is a Gold Loan?
It is a secured loan that public/private banks and other financial institutions offer against gold jewellery and ornaments as collateral security. You can generally avail gold loan for pretty higher amounts up to Rs. 1 crore.
You need to submit KYC documents while applying for a gold loan. No income proof is required since it is a secured loan.
The gold loan eligibility amount depends on the gold rate, loan tenure, the number of ornaments, their carat rating, and weight. Altogether, it is a convenient option that can be used for multiple purposes.
Now, let’s look at how a credit score is affected by the gold loan:
Gold Loan and Credit Scores
Credit scores don’t hold much significance in approval of loans against gold as they are backed up by precious jewellery. But, failing to payback the loan timely or failing to do so completely may affect your credit scores. It is suggested to avail gold loan only if you are confident to pay back the amount timely without affecting other expenses and dues. A default or delayed payment can lower your credit score.
The Positive Impact of Gold Loan Repayment on Credit Score
Like any loan, repayment of gold loans in time will positively impact your credit score.
Maintaining a Higher Credit Score with Gold Loans
- You can choose to pay back your dues through regular EMIs or complete payment at the end of the loan tenure. Whatever is the case, make sure to pay your dues as timely as possible.
- Ensure that you do not fail to make the payment beyond a certain timeline forcing the lender to recover the amount by selling off your gold.
The consequences of defaulting or delaying the loan repayment, be it a gold loan or any other loan, may vary with different lenders, but you can surely expect considerable damage to your credit score. You must ensure to make the payments responsibly on time.
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