How Can a Gold Loan Impact your CIBIL Credit Score?

Find out if and how does a gold loan affects your CIBIL score, along with ways to avoid a negative impact.

Gold Loan Impact CIBIL Score

A gold loan is a popular loan product in India. Indians have a traditional soft corner for gold, and every household seems to have some of it safely stored. Whenever there is a financial need, gold is up there among the available collaterals that you can pledge to get a secured loan. Being offered against an asset, a lower rate of interest is one of the many secured loan/gold loan benefits.

Your CIBIL score is a snapshot of your financial discipline and credibility. Not surprisingly, every time you opt for a credit product, your CIBIL score is bound to be impacted. Let us find out how a gold loan can affect your CIBIL score.

Also ReadThese 11 benefits of gold loans make them preferred option for borrowers in India

Does Gold Loan Affect CIBIL Score? 

The relationship between a gold loan and CIBIL score can be negative or positive, depending on how you handle the repayment. A gold loan can improve your CIBIL credit score if your repayments are timely and complete. However, in case of repayment defaults and delays, a gold loan does affect your CIBIL score negatively. Let us understand it in further detail.

  • Applying for the Gold Loan – When you apply for the gold loan, your credit score will reduce by a few points. When you apply for a loan, a report is sought from CIBIL in a process known as a hard enquiry. Each time you apply for a credit product your CIBIL score goes down marginally. This is another reason why you shouldn’t go on a loan application spree if you have been rejected once. 

To keep your CIBIL score intact in this stage, always,

  • Assess your loan requirement,
  • Assess your income, loan amount, EMI amount, EMI repayment capacity, etc.,
  • Try to find out your loan eligibility using loan eligibility calculators or through your contacts in the lending bank,
  • Apply for an amount that seems practical in view of the above (although it is easier said than done).

Also Read5 myths about gold loans you shouldn’t believe

  • Approval Process – If your gold loan application is rejected, your CIBIL score will reduce again. This time, significantly. However, if your loan application is approved, your CIBIL score will increase. Thus, a little homework before applying for a loan can go a long way in maintaining or increasing your CIBIL score.
  • Repayment – Once your gold loan is approved, you will have to start repaying it soon after in the form of an EMI. You can set a standing instruction in your bank account to honour the EMI payment request on the due date and allow the auto-debit. Secondly, you have to maintain a sufficient balance so that the auto-debit request doesn’t get rejected due to a lack of funds. This will ensure that all your gold loan EMIs are paid on time. And if indeed all your EMIs are paid on time, it reflects your responsible credit behaviour too.

As a result, your CIBIL score will increases, along with your chances of getting another loan in the future.

Repayment Defaults – A delay of a single day in the gold loan repayment gets reported to the credit bureaus like CIBIL. This gets added to your credit report, and your score can go down drastically. Generally, a default of over 90 days on your gold loan makes the loan a non-performing asset. Erratic repayment of gold loans affects your future loan approval prospects too. 

Also Read14 commonly asked questions regarding a gold loan

To Sum Up

Getting a gold loan and repaying it timely does wonders for your CIBIL score. However, avoiding serious defaults can not only hamper your credit rating but also put your gold ownership at risk.


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