Gold loan on CIBIL report can act as a mine

03-May-2016 written by : FSI-Team

With the awareness about credit information companies or bureaus and the work they do growing, it comes as no surprise then that the importance of having a good CIBIL report has never been more prominent than it is today. Over 80 percent of loans that are approved, are of those individuals who have a score of 750 and above (of a possible 900), which clearly indicates that higher your score, better are your chances of approval for a fresh line of credit.

However what happens if you do not have a good credit score? There is still the possibility of getting a loan for bad credit score, even though the interest rates being offered may not be optimal. Further, the loan amount sanctioned may not be as much as it would have possibly been for someone with a better score.

Let’s understand what you can do to ensure your score improves over a period of time:

  • Make timely payments towards all outstanding loan and card accounts
  • Do not max out your credit card limit
  • Have a healthy credit mix (of both secured and unsecured loan products)
  • Do not apply for multiple cards at random, but only when you really do require one

Gold loans and credit history

One of the better ways to establish credit history is to avail of a gold loan. A gold loan is a type of secured loan, just as a home or auto loan can be. Here, you pledge your gold in order to avail of the loan, as you would with say a home or a car. When serviced judiciously, secured loans can be good for your credit score. Your loan repayment behavior gets reported to credit bureaus and making timely payments for instance can help increase credit score when these loans are repaid.

Of course, when gold dips in value, it often prompts individuals who have availed of these loans to default on payments or skip them entirely. Doing so however can damage your CIBIL score, and hence being responsible and diligent with repayment counts.

Historical view on gold loans

Even as recently as a few years ago, availing of a gold loan was considered to be a negative mark on your CIBIL report as only those individuals who would not get loans from any other medium used to opt for gold loans. However, today, that is definitely not the case with the increasing awareness about the loan product and its value addition, which include:

  • Gold loans are cheaper than personal loans, i.e. they have a lower rate of interest
  • What is an unproductive asset (since we tend to keep gold in the locker) is being used
  • Disbursal on gold loans is a quick and fairly seamless process
  • The Government offers subsidiary benefits when you avail of a gold loan

While initially gold loans were restricted to small players and local moneylenders and pawnshops, when the product grew in demand, several well-known companies have started to offer this product, following which even private banks have got into the fray.

In conclusion

When you avail of a gold loan, remember to treat it as you would with any other secured loan product, and ensure timely EMI payment and adherence to other terms and conditions. This would over the long run help you to boost your credit score. There is reason enough to avail of the product should you require finance and the key to getting the loan application approve begins with a good credit score.



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