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Does Taking Gold Loan Affect My Credit Score?

June 05, 2021 | posted in News | posted by : Manappuram Finance
A gold loan (also known as a loan against gold) is a secured loan obtained from a lender in exchange for the borrower's gold articles (within a range of 18-24 carats) as collateral. Based on the current market value and quality of gold, the loan sum is a percentage of the gold, usually up to 80%. Nationalized banks, private banks, and other financial institutions provide loans at low gold loan EMI rates. Unlike other loans, which could have certain terms and conditions on how the funds will be used, this loan has no such restrictions. 
How you perform and maintain your credit payments has an effect on your credit score (a numeric summary of your credit history). Before handing out any loans to customers, the RBI has made it mandatory for banks to check the CIBIL score. Personal loans are riskier for a bank because they are unsecured. A high CIBIL Score, among other things, gives the bank more interest in your ability to pay back the loan. 
Gold Loans, on the other hand, require you to have leverage in the form of a reasonably liquid tangible commodity, such as gold. Banks are more likely to offer you a loan despite your poor credit score because your Gold asset serves as insurance and protects them from default risk. 
As a result, when Personal Loans are not an option, Gold Loans can be a viable option. 
Why is Gold Loan the Best Choice to improve your CIBIL Score?
Gold financing is one of the most viable choices among the various types of loans available. In today's world, it's even easier to obtain an instant gold loan because the application process is completed online and Gold Loans may help improve your CIBIL Score. 
Gold loans have a number of benefits, including low gold loan EMI rates, affordability, and accessibility. But one stands out: it can help you increase your CIBIL score and potentially open up future loan options. Always remember, 
Repay on Time: 
Make sure you pay your EMIs (Equated Monthly Installments) on or before the due date, if at all possible. Payment of EMIs on time will begin to improve your credit score. Maintain your focus, and you'll soon have a high CIBIL score and a plethora of opportunities. 
Avoid Collateral Auction: 
This is an absolute no-no. While some lenders may be lenient and not penalize you for one or two late EMI payments, it will damage your credit score and adversely affect your gold. Stretch the budget, but don't skip payments at all costs. 
Please keep in mind that, while Gold Loans are more convenient to obtain, you will be placing your valuable assets at a risk for the duration of the loan. This may be necessary in an emergency, but it may be less than ideal in the long run. Look for ways to boost your credit score and, if applicable, move to an unsecured loan as soon as possible. 

What are the most typical rates of gold loan EMI and processing fees?
Depending on the lender, gold loan EMI rates on gold loans range from 9.24 percent to 17 percent. Some lenders often charge a processing fee that ranges from 1-3 percent of the loan amount. 
A Gold Loan will help people who need money but have a bad credit score to improve their credit score. Prompt repayment of any loan, even a Gold Loan, will greatly improve your credit score. This would have a greater impact on your credit than a non-secured personal loan, so take out a gold debt and repay it early. Notably, financial institutions do not view late payments of secured loans, especially Gold Loans, in the same way, that they regard late payments of other unsecured loans. 
Furthermore, interest rates on other unsecured loans could be higher than on gold loans. As a result, Gold Loans can prove to be cost-effective.

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