Does Opting for Gold Loan Impact Your Credit Score?

Does Opting for Gold Loan Impact Your Credit Score?

A gold loan is a secured loan option made against gold jewellery that you pledge. The loan proceeds are decided based on the gold’s purity and market price on that specific day. A gold loan is an immediate credit option wherein the bank evaluates your gold as well as deposits the funds in your bank account. Upon putting gold as security or collateral, you do not require offering any additional security. As an outcome, your score is not considered when your credit application is processed. 

However, your past repayment record is recorded with credit bureaus, and any late or missed payments will appear on your past credit record. This can impact your potential to avail of future loans and credit cards. When it is regarding loans and credit cards, your score is very important. A high score ensures huge loan proceeds and a low rate of interest. For instance, if you are eyeing on Muthoot gold loan, then you can avail this loan at a low Muthoot gold loan interest rate owing to its secured nature. 

Gold loan is a prudent way to ameliorate your score – 

A gold loan is a prudent way to ameliorate your score as the loan is secured by gold. The loan proceeds are decided by the market’s gold price, which is a verifiable and stable financial instrument. While a poor repayment track record can massively impact your score, if you maintain a gold loan repayment properly, then you can ameliorate your score. Moreover, a gold loan is a good option in case you are stuck in any financial crisis or crunch. However, for this, you must ensure to abide by certain points, these include – 

Make your repayments timely – 

When you make your repayments of EMI timely, this would be recorded against your past credit record. This is an easy medium to ameliorate your score. 

Missed EMIs or late payments may be an outcome in the auction of your collateral i.e., gold – 

While a few lenders might be generous and may not penalise you for two to three late repayments of your EMI, this can negatively impact your score and create a negative impact on your pledged security too. Stretch out your budget but avoid skipping repayments at any cost. You as a borrower should seek gold loans because they are simpler to obtain. However, you must note that you will put in your valuable assets in danger for the loan term. In scenarios of financial emergency, this might be necessary. However, it might be less than optimal over the long term. Have a look at the strategies to ameliorate your score and if necessary, switch to the unsecured credit option at the earliest. 

Also Check: Muthoot Gold Loan Interest Rate

Gold loan – a snapshot 

Gold loan rate of interest 7 per cent – 13 per cent
Loan proceedsAs high as 90 per cent of the gold value (loan of as high as Rs 1 crore can be taken up)
Loan repayment tenureBetween 7 days and 36 months
Gold items that you can pledgeBars and coins, gold jewellery
Repayment optionsBullet payment plans or EMI payment
Processing chargesBetween 0.25 per cent and 2 per cent of the loan amount

Mentioned here are the top five cheapest gold loans available in the Indian market – 

Bank nameRate of interestLoan proceedsProcessing chargesRepayments
Canara Bank – Gold Swarna Loan7.25 per centBetween Rs 5,000 and Rs 35 lakh0.50 per cent of loan proceeds capped at the highest amount of Rs 5,000Swarna overdraft – 2 yearsBullet payment – up to 12 months
Union Bank of IndiaBetween 7.25 per cent and 8.25 per centLoan to value of 75 per cent – Up to Rs 25 lakh is availableAccording to the bank’s guidelinesBullet repayment – Highest repayment tenure is of 12 months
Indian Bank – Jewel loan8 per centLTV of 70 per cent for a loan proceed of up to Rs 5 lakh and LTV of 65 per cent for a loan proceed of over Rs 5 lakh0.50 per cent of loan proceedsEMI repayment – Highest tenure of 35 months Bullet repayment – Highest tenure of 12 months 
State Bank of IndiaBetween 7 per cent and 7.50 per centLTV of 75 per cent of gold value for an amount of up to Rs 50 lakh0.25 per cent of loan proceeds + minimum of Rs 250 + applicable GSTSBI realty gold loan – tenure of up to 36 monthsSBI realty bullet gold loan – up to 12 monthsSBI realty liquid gold loan – 36 months
Bank of MaharashtraBegins from 7 per cent onwardsLTV of 75 per cent of the gold value (for an amount of up to Rs 25 lakh)For an amount of up to Rs 2,000Cash Credit – A tenure of up to 12 monthsBullet plan – A tenure of up to 12 monthsEMI plan – A tenure of up to 12 months

Gold loan vs. personal loan – Which option is the prudent one?

·       Personal loan is a preferable option if you require a bigger borrowing amount. If you require a loan instantly, a gold credit option is the best for you. 

·       Personal loan comes with higher repayment tenure while a gold loan only requires you to repay the interest across the borrowing time period. 

·       The ultimate decision is dependent on your requirements. Ensure to prepare a list of needs and based on this determine which loan would be the right option for you. 

·       Remember, before you select between a personal loan and a gold loan, you must ensure to compare the rate of interest, payout time, processing charges, and other crucial considerations. Whatever loan option you select, ensure to assess your EMI potential and payback so that your score is not impacted negatively in the future. 

Ending note – 

Note that a strong score is an important constituent to avail best loans as well as credit cards. In times of financial worries and stress, a gold loan can assist you tide over uncertain times because loan proceeds are assured against gold. But you must repay the loan timely so that your score is not impacted.

Written by Enaa Mari

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