Lenders provide you with a loan or credit in exchange for their trust that you will repay it on time. Additionally, your credit score is an indicator of how responsibly you manage your credit obligations. In order to address your question, yes, credit in general and gold loans in particular affect your credit score. Your credit score will rise if you make timely payments on your credit card or gold loan per gram. On the other side, making careless loan payments may damage your credit score and, as a result, your ability to obtain loans in the future. If you want to always have access to the credit facility, handle it carefully. You must understand the various ways a gold loan can affect your credit score in order to accomplish this.
We’ve covered a few aspects below to help you better understand how the gold loan may affect your CIBIL credit score:
Gold loan application
Even a few points can be deducted from your credit score by merely applying for a gold loan. Lenders do a hard inquiry each time a gold loan applicant submits an application. If you’re wondering what a “hard inquiry” is, it’s when a lender requests your credit report from the credit bureaus. It is to determine whether or not to approve your application. Your credit report reflects this hard inquiry. A few hard queries on your credit report are not a problem because you cannot obtain a gold loan without an inquiry. However, multiple queries appearing on your credit report, especially in a short period of time, may show that you are credit-hungry, i.e., you either urgently need a loan or you are taking on more debt than you need, neither of which is a positive indicator.
Gold loan payments
You will be required to repay the loan in accordance with the agreed-upon terms and conditions once a lender accepts your loan application. Your credit score will rise if you pay off the loan on time, while it will fall sharply if you don’t.
Read on to find out how your credit score will be impacted by your gold loan payments:
Regular payments
Building a decent credit score requires making loan payments ahead of schedule or on time. In contrast to borrowers who are erratic with their loan payments, individuals who pay their EMIs on time exhibit responsible credit behavior. It increases their appeal as a borrower. For these debtors, lenders favor making gold loans. Some even go so far as to reduce the interest rates on gold loans slightly.
Loan default
A default occurs when you don’t fulfill your commitment under the loan contract to repay the gold loan. Even a single day of late payment on a loan is reported to all Indian credit bureaus. Then include this information in your credit report and significantly lower your credit score.
Additionally, there are late payment fines and possibly other small fees if the needed payment is not made within 30 days. However, missing 90 days in a row on a gold loan would result in the NPA (Non-Performing Asset) label being placed on your credit report, which will make it impossible for you to obtain a loan from any other lenders. A legal notice and ultimately the sale of the gold items you had pledged to the lender in place of a gold loan could result from further non-repayment of the debt.
Conclusion
You now understand how a gold loan may affect your credit score. Your credit score might go up with consistent payments, but it can go down with numerous loan inquiries. To put it mildly, defaulting on a gold loan carries a variety of consequences. The specifics of these effects depend on the situation. However, generally speaking, you should be ready for your credit score to be seriously harmed, fewer opportunities to get credit in the form of a loan or credit card, a legal notice, additional costs in the form of late payment fees, other penalties, and legal costs, as well as the possibility of having your gold items put up for auction. If you frequently forget when your loan payments are due because of being busy, set a reminder. Set a reminder on your phone, computer, and any other device you could use every day. You’ll be more likely to pay your bills on time if you set a reminder. Asking your lender to deduct the money right away from your bank account is another action you may take. It helps you avoid late payments.
