Is A Good Cibil Score Required For A Gold Loan?
Know the importance of credit score required for a gold loan and understand who determines your CIBIL score. Read this article by IIFL Finance to get detailed insights!
![Is A Good Cibil Score Required For A Gold Loan? Is A Good Cibil Score Required For A Gold Loan?](/files/iifl_insights/images/Is-a-good-CIBIL-score-required-for-a-gold-loan750.png)
Financial institutions, be it banks or non-banking finance companies (NBFCs), offer two types of loans: secured or unsecured.
Secured loans are advanced against a collateral or pledge of some asset. Loans are provided after discounting a part of the value of the asset being pledged. This is to mitigate the asset-liability mismatch in case there is a default and the value of the collateral goes down.In case of unsecured loans, the borrowers take a loan without putting up a collateral. In effect, this pushes up the risk for lenders. One of the ways such loan applications are assessed is the credit history of the borrower.
What Is The CIBIL Score And Why Is It Important?
The credit history is captured via credit scores, also known as CIBIL scores after the company which pioneered the concept in India—Credit Information Bureau (India) Limited, or CIBIL. The score is represented by a three-digit number that ranges between 300 and 900.The higher this figure, the better is the credit score and vice versa. In fact, a low credit score can even trigger a bank or an NBFC to reject the loan application. In a few cases, even if they approve a low with a low CIBIL score, they use the score to increase the interest rate at which they agree to advance the money.
As a result, the CIBIL score is critical for a borrower as the lenders use it as an important element to decide whether to lend or not and at what price or interest rate.Typically, a score of 750 and above is considered good, giving a reasonable assurance that the borrower would repay the money.
Who Determines These Scores?
Besides CIBIL, which is now known as TransUnion CIBIL, there are a few other specialised credit information agencies that offer standardised credit scores that help lenders evaluate a loan application. These include Experian, Equifax and CRIF Highmark.These firms scan each individual’s financial capacity given their credit history. This is not just by looking at actual loans, be it personal loan or a housing loan etc, but also credit card usage and repayment track record.
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Apply NowDoes a Gold Loan Impact Your Credit Score?
Life can be very unpredictable, sometimes leaving us in a difficult situation in need of urgent financial help. In these situations, a gold loan can be a tempting option. But a common question arises: does taking a gold loan affect my credit score, that mysterious three-digit number that seems to control our loan eligibility? Let's explore the impact of gold loans on your credit score.
First things first, what's a credit score?
It's like a report card for your financial habits. Timely loan repayments and responsible credit card usage earn you good grades, boosting your score. On the other hand, missed payments or defaults earn you a lower score. This score reflects your creditworthiness to lenders, influencing their decision to grant you loans and it can also impact your gold loan interest rates.
Gold loans and credit scores.
Unlike unsecured loans like personal loans, gold loans are secured by your precious gold ornaments. This reduces the risk for lenders, making them generally more accessible even for those with low credit scores. But remember, a gold loan still finds its way onto your credit report. This means it can have a two-way street effect on your score:
How to boost your credit score:
Repaying on time: This showcases your reliability as a borrower, sending your score soaring. Consistent timely repayments over a sustained period can significantly improve your credit health.
Building a positive credit history: If you haven't borrowed before, a gold loan, when repaid responsibly, can establish a positive credit history for you. This opens doors to future loan opportunities with better interest rates.
How can your credit score drop:
Late payments or defaults: Just like any other loan, missed payments or defaults on your gold loan can tarnish your credit score. This can make it harder to secure loans in the future and potentially lead to higher interest rates.
Multiple inquiries: Applying for multiple gold loans or other credit products within a short timeframe can also trigger a slight dip in your score. Think of it as lenders getting suspicious of your sudden borrowing habits.
So, should you be worried? Not necessarily.
Responsible borrowing is key.
Here are some tips to navigate the gold loan game and keep your credit score sparkling:
Borrow only what you need: Don't get carried away by the ease of access. Remember, you have to repay the loan with interest. Overborrowing can strain your finances and lead to defaults. Use a gold loan calculator to estimate your repayment burden before diving in.
Prioritize timely repayments: Treat your gold loan like any other debt. Set up reminders, automate payments, or opt for flexible repayment options to avoid missed deadlines.
Limit other credit inquiries: While exploring a gold loan, avoid applying for multiple loans or credit cards simultaneously. This temporary dip in your score can impact your eligibility for the best gold loan offers.
Now that you've demystified the gold loan and credit score connection, remember responsible borrowing is key to a shining credit report. If you're considering a gold loan, consider IIFL Finance as your trusted partner. Their rapid disbursal rates, flexible repayment options, and competitive interest rates ensure a smooth and stress-free borrowing experience. For added convenience, they even have a gold loan calculator which instantly gives you the value of the loan amount that you can avail against your gold possessions.
For added convenience, IIFL Finance offers "Gold Loan at Home Services," where their representative visits your home, evaluates your gold and completes all the formalities. This doorstep service makes the process even more seamless, allowing you to borrow with ease from the comfort of your own home.
So, the next time life throws you into a financial dilemma, remember, that a gold loan with IIFL Finance can be your saviour. Borrow responsibly, repay diligently, and watch your credit score soar as you navigate life's challenges with confidence and financial freedom.
Gold Loan
A gold loan is a type of collateral-backed personal loan. In fact, it is the most secured form of loan for most lenders. This is because the price of gold historically has only moved up and the yellow metal is considered a safe asset. With the margin money involved, lenders also get a buffer to increase their comfort factor.
A gold loan is provided against personal gold jewellery. Many banks also provide gold loans against gold coins issued by them in the past.
A gold loan is also a special case as it is an exception as a lending product. This is because lenders do not necessarily insist on meeting a credit score requirement for advancing money to a borrower against gold ornaments.
The price of the asset being pledged, in this case gold jewellery, itself provides a reasonable assurance to banks and NBFCs, reducing their lending risk.
One needs to keep in mind that only the value of actual gold is considered while calculating its value. Any precious stone embedded is not factored in the weight of the ornament while calculating the value of the collateral.
Lenders also, however, do due diligence and evaluate the purity of the yellow metal in the jewellery to cover their money against the risk of default.
This makes gold loan an easy and accessible option to meet various personal or business requirements of cash in the short term, compared to a plain-vanilla personal loan that is dependent on the CIBIL score.
So, if one has a bad score, say at just around 600, one may have to struggle to find a lender to borrow money. But if one has some gold ornament that one can part way from temporarily, one can get a loan sanctioned even with a bad CIBIL score.
Conclusion
A gold loan is often considered the best form of borrowing to meet short-term personal needs. This is because they come with minimal hassles and scrutiny by the lender, who otherwise need to be comfortable of the creditworthiness of the borrower and his or her ability to repay.
Since the gold loan is provided against gold as a collateral, lenders like IIFL Finance do not base their decision to accept a borrower on their CIBIL score. This is due to the fact that they already have a precious metal as collateral, whose value is more than that of the loan sanctioned.
IIFL Finance promises a hassle-free loan application and disbursal process where the approval can happen within a few minutes of the representative valuer setting the worth of the collateral and the disbursal is promised within 30 minutes flat.
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Apply NowDisclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.