How Gold Loan Influences Your CIBIL Credit Score?

One of the most influential factors in today’s financial world is the CIBIL score. This score can affect your loan eligibility, whether you get your loan approved or rejected, how much you pay on interest rates, and the amount you pay on your home insurance premiums! But what exactly does this number represent? And how can it affect the financial decisions you make?

This article highlights the ways gold loans can influence your CIBIL score.

What Is A CIBIL score?

Your CIBIL score is an all-inclusive representation of your credit history. Banks and other financial institutions leverage it to gauge your capacity to repay loans and lines of credit. The higher your CIBIL score, the more likely your approval for new loans.

Ways A Gold Loan Can Influence Your Credit Score

The following ways a gold loan may affect your CIBIL score include

1. Gold loan payment plans typically have lower monthly payments than traditional forms of financing, such as car loans and mortgages. Since you're borrowing money over a shorter period (typically three years), there will be less impact on your credit score if you miss a few months of making payments.
2. While some banks may report missed monthly payments to CIBIL, others don't. However, even if your bank does report them, they might not hurt your score too much.
3. Many banks offer interest-free grace periods for customers who sign up for auto payment. If you set up automatic withdrawals from your checking account every month, any late fees incurred during the grace period are waived without damaging your credit score.
4. As interest rates on gold loans are often low, missing a payment doesn't necessarily mean you will not pay much more than the originally agreed-upon sum.

When Does Getting A Gold Loan Affect Your Credit Score?

Gold loans can affect your credit score in two ways:
1. When you take the loan.
2. When you don't repay the loan on time.

If you take a gold loan and then repay it before your next credit score review date, it's unlikely that there will be any adverse effect. However, if you don't pay back the loan on time and default, this will lower your CIBIL score. The span of delay in your payment determines the length of the negative impact.

The greater the days past due on the payment, the more significant the negative impact on your credit score. Some collection agencies might have taken legal action against you and applied for judgments, which can also hurt your CIBIL score - potentially permanently.

FAQs:

Q.1: Can it impact my credit score if I don't repay my gold loan on time?
Ans: Yes, your late payment can affect your credit score. Late payments will reduce your creditworthiness.

Q.2: What are the effects of missing one or two instalments for a gold loan?
Ans: If you miss just one or two installments for a gold loan, it may not harm your credit score. If you miss three to four installments in a row, you may be charged with bad debts, which could affect your score significantly.