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A gold loan is a secured loan that you can get by putting your gold jewelry or other gold items up as collateral. Based on the rules set by the RBI, you can get up to 75% of the value of the gold. It is one of the easiest ways to get money, especially if you are in a tight spot financially because you don't have to show proof of income. The lenders don't even care about your credit history or CIBIL score.
Also, if your CIBIL score is low, you can use a Gold Loan to raise it. Here's what happens to your credit score when you get a Gold Loan.
Applying for a Gold Loan: If you apply for a gold loan with more than one lender, it will show up as a hard inquiry on your credit report. When you make a lot of these kinds of inquiries, it usually means that you need credit badly. On the other hand, if you apply for a gold loan through an online marketplace where you can easily compare rates, check eligibility, and calculate gold loan EMI for multiple lenders all in one place without affecting your credit score.
Credit Mix: Having a mix of secured and unsecured loans is one of the best ways to improve your credit score. At the same time, if you have a good CIBIL, you can get unsecured loans. Gold loans are a form of secured credit that can work for both lenders and people who need money. There are many reasons why the same is true. Some of these are easy-to-meet eligibility requirements, like not having to show proof of income or a CIBIL score, the ability to buy gold online, a higher loan amount, rising gold prices, and a lot more. So, a gold loan can help you get money when you need it most and give you a mix of secured and unsecured loans on your credit report.
Pay your loan back on time. Even though Gold Loan doesn't check your credit score, paying back your loan on time can help your credit score. You can always choose a longer term since a longer term will lower your EMI and let you pay off the loan on time.
Paying off gold loans early: If you pay off your gold loan before the loan term is up, you can also improve your credit score. Before paying off a gold loan early, you should check with the lender to see what the prepayment fees are. If you don't, you may end up paying more than the usual amount.
Settlement of Gold Loans: When you pay off your gold loan, make sure you get a formal certificate from the lender that the loan is over. You also have to double-check that the account is Closed and not Settled. Because a settled account means you paid less than the original amount. It shows that you can't pay back the loan and that the lender lost money because of that. It will hurt your credit score because of this.
Bottom Line: A gold loan gives you a chance to fix your CIBIL score. A gold loan is also easy to get, and it has many benefits compared to other types of credit. Gold Loans have lower rates than personal loans, are easy to qualify for, and don't need as much paperwork.