The short answer is ‘Yes’. Since lenders report gold loan details to credit bureaus like CIBIL, your repayment behaviour directly influences your credit score. On-time payments can raise your score, while missed payments or defaults can lower it.
In the case of gold loans, the primary factor affecting the CIBIL score is the timely repayment of the loan. When you take a gold loan, the lender reports the following things to credit bureaus such as CIBIL -
Your loan account number
Your loan details, like amount and tenure
Your repayment history
Any defaults or settlements
If you consistently make timely repayments without any defaults or late payments, it can have a positive impact on your credit score.
Regular and timely repayments indicate responsible financial behavior and can contribute to building a positive credit history.
Yes, a gold loan can help you improve your credit score if used wisely. Here are 3 ways gold loans can boost your score -
Every on-time payment adds a positive entry to your credit history. Even a small gold loan repaid properly can strengthen your profile.
Having both secured (gold loan) and unsecured (credit card, personal loan) credit improves your overall score. Lenders like to see a healthy mix.
Many borrowers use gold loans to repay high-interest loans. Clearing expensive debt while responsibly handling a gold loan improves both your repayment capacity and credit record.
Here are some ways you can use your gold loan to improve your CIBIL score -
Borrow only what you can repay. It’s not the amount but the discipline of repaying that helps you to build credit history.
Opt for EMIs as they are easier to manage and help build a longer history.
Pay on time, every time. Even one missed or delayed payment weakens the benefit.
Close the loan early if possible. A clean closure strengthens your profile.
Avoid multiple gold loans simultaneously. Too many open loan accounts reduce credibility and show you as credit-hungry.
If you fail to repay the gold loan as per the agreed-upon terms and conditions, it can negatively affect your credit score. Let’s see what can happen -
If you skip EMIs or interest payments, the lender flags it as a delay. Even a single missed cycle can put a dent in your score.
If you cannot repay, the loan may turn into an NPA (non-performing asset). The lender can auction your jewellery and report the default to bureaus, and this severely damages your CIBIL score.
Taking several gold loans at once or re-pledging the same collateral may lead to multiple hard enquiries and suspicion from lenders.
Such negative remarks on the credit report can stay on record for a significant period and may affect your ability to access credit in the future.
Know Your Credit Health Instantly
|
Feature |
Gold Loan (Secured) |
Personal Loan (Unsecured) |
|
Collateral |
Required, gold is pledged |
Not required |
|
Interest rate |
Lower, ranging from 10 to 15% on average |
Higher, ranging from 12 to 24% on average |
|
Ease of approval |
Very easy |
Depends on credit score |
|
Effect on CIBIL |
Positive if repaid |
Positive if repaid |
|
Risk of default |
Loss of jewellery |
Legal/collection action |
When considering taking a gold loan, it is essential to make an informed decision to ensure that it aligns with your financial needs and goals. Here are some key factors to consider before pledging your jewellery :
RBI caps it at 85% of gold value (RBI) for loans under ₹2.5 Lakh (Source: The Hindu)
Only 18k or above is accepted, and valuation varies by lender. Gold valuation methods vary, and lenders consider several factors such as purity, weight, and current market rates.
Ensure that the lender follows transparent and reliable valuation practices to ensure a fair assessment of your gold assets.
Evaluate their credibility and choose a reliable lender before proceeding with a gold loan. Consider factors such as customer reviews, customer service quality, and the lender's overall standing in the market. Also, make sure to choose RBI-regulated banks or NBFCs, not unregistered pawnbrokers.
Since gold loans are secured loans, the interest rates will be lower than unsecured loans, such as personal loans.
Compare the interest rates offered by various lenders as they vary depending on the lender, loan amount, loan tenure, and other factors.
Understand the applicable interest rate, whether it is fixed or floating, and if there are any additional charges or processing fees.
Some offer only interest payments, others require EMIs. Choose a tenure that suits your financial goals by evaluating the loan tenure options available to you.
Clarify the terms and conditions related to prepayment and foreclosure of the gold loan. Check if there are any prepayment charges or penalties for repaying the loan before the agreed-upon tenure.
If you can’t repay, your gold can be auctioned, and your score will fall.
Want a Credit Card with High Limits & Rewards?
Gold loans can affect an individual's CIBIL score - either help you climb the credit ladder or push you down it. Timely repayment of the loan can have a positive impact, while defaults or late payments can lead to a decline in credit score.
Responsible borrowing, regardless of the type of loan, is crucial for maintaining a healthy credit history. So before borrowing, weigh the benefits against the risks.
And remember, your CIBIL score today shapes the kind of loans you’ll get tomorrow.
CIBIL Score Check and Boost Guide
Credit Score Basics and Full Forms
Credit Tracker Related Other Articles
Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
Was this information useful?
