To put it simply, timely repayments raise the CIBIL score, whereas late or missing payments have a negative impact. This is true for every kind of loan. One distinctive feature of gold loans in particular is that monthly payments are simpler to make and the repayment is frequently limited to interest over the loan term. Gold loans are often short-term, and prompt repayment increases the positive factors that go into establishing and determining a credit score. Even if you have no or poor credit history, gold loans offer a wonderful way to receive loans at a fair interest rate. Insofar as gold loans sometimes don’t necessitate a close examination of credit scores. Being a responsible borrower is the best way to raise your credit score and history, and timely and consistent repayments are essential to establishing a positive credit history. Based on an interview with Sumit Sharma – Founder – Radian Finserv Private Limited, here’s how gold loans can help you build your credit score for those who don’t have a good CIBIL score.

Will Taking a Gold Loan Affect Your CIBIL Score Positively or Negatively?

The repayment of a loan works to affect the CIBIL score. In simple terms, regular repayments enhance the CIBIL score, and delays or non-payment affect the CIBIL score adversely. This is true for all loan types.

Gold loans in particular have one unique difference; the repayment during the loan tenure is often only for the interest, and regular payments are easier to make. Most other loans typically have principal and interest payments to be made, and thus require a higher payment on a regular basis. In case this helps the borrower’s requirements and funds situation, then gold loans can be easier to repay during the tenure of the loan, with the principal paid at the end of the loan tenure. Given the borrower’s fund requirements, this may be a positive for the CIBIL score.

How Responsible Gold Loan Repayment Can Transform Your Creditworthiness?

Responsible borrowing and regular repayments can help enhance creditworthiness. Borrowers should be prudent when taking on loans, and not over-leverage themselves. Good financial habits and behaviour add to the creditworthiness of borrowers. Gold loans tend to be short-term, and timely repayment adds to the positive inputs that go towards building and calculating the credit score. Also, as gold loans often do not require critical scrutiny of credit scores, taking gold loans can help build a credit history.

Can a Gold Loan Help You Get a Home Loan or Car Loan in the Future?

The short answer is yes. Gold loans often require limited credit scrutiny, and can help build a credit history and enhance the credit score for borrowers. Over time, this can help in building a credit history, and serve as a positive input for other loan categories.

Are Gold Loans the Best Option for Those with a Low Credit Score?

Gold loans provide a good option to get loans at a reasonable interest rate, even with limited or no credit history. Often, borrowers tend to take loans from money lenders at usurious rates, and gold loans provide a good option with affordable interest rates. Borrowers should be careful though to ensure timely payments, as a lack of payments can lead to the gold being auctioned off by the lender.

Gold Loans vs. Personal Loans: Which One Helps Your CIBIL Score More?

With the caveat that loans should be taken based on the need and financial situation of the borrower, there is no great difference in the CIBIL score being affected by a specific type of loan. The principle remains; regular repayments help the CIBIL score. There is an argument that gold loans are easier to repay, as only the interest is typically payable during the loan tenure, with the principal being repaid at the end of the loan tenure. Equally, borrowers should be aware that a delay or a lack of repayment of the principal amount leaves the gold ornaments at risk, as the borrower can auction off the gold ornaments to recover the outstanding amount.

Can a Gold Loan Improve Your CIBIL Score Faster Than a Personal Loan?

Effective repayments can help improve the CIBIL score. Gold loans, being typical of a short tenure can help.

Do Gold Loans Show Up on Your Credit Report?

Yes, all loans taken show up on the credit report. All registered and authorised lenders and banks are obliged to highlight all loans to the credit bureaus.

No Credit History? Can Taking a Gold Loan Be Your First Step to Building Credit?

Yes, gold loans provide a good option to borrow at a reasonable rate of interest even if there is no credit history. Personal loans can be more expensive, especially with limited or poor credit history. It should be noted that timely and regular repayment is key to building a credit score, and not repaying can lead to the gold ornaments being auctioned by the lender.

Denied a Loan Due to a Poor CIBIL Score? Can Gold Loans Be the Solution?

Yes, to the extent that gold loans often do not require a critical scrutiny of credit score, as the lending organisation takes possession of the gold ornaments. However, it should be noted that timely and regular repayments are key to building a good credit history, and being a responsible borrower is the most effective tool for building a credit score and history.