When individuals are contemplating loans, the initial thought that occurs to them is the CIBIL score. A low score usually implies the rejection of personal loans, credit cards, or unsecured credit. But what about gold loans? Does credit score actually make a difference in terms of approval?
Well, the general answer to this is: not as much as you would imagine. But it still has a subdued influence.
If you are someone who intends to pledge your gold to get a loan against it, then you must know how lenders will scrutinize your profile. This way, you can make wiser financial decisions and will not be subjected to unwarranted stress.
Difference Between Gold Loan & Other Types Of Loans
A loan against gold jewellery is a secured loan, unlike a personal or business loan. This implies that you secure your gold as surety, and the lender will provide money depending on its worth and quality.
Due to the fact that the loan is secured by a physical and tangible property, the risk to lenders is greatly reduced. This is the reason why the eligibility of the gold loan depends mostly on the gold that you present and not on your credit history.
Does The CIBIL Score Affect Your Gold Loan Eligibility?
In a technical sense, you can take a gold loan without having a good CIBIL score. You simply search for ‘apply gold loan’ and select the most appropriate lender that suits your needs. Nonetheless, it would be wrong to say that it does not have any effect.
It actually has some effects. The following is the order in which lenders proceed to evaluate borrowers:
- Key parameter: Gold purity and weight
- Secondary factor: Fundamental KYC and repayment profile
- Optional factor: Credit behaviour
However, there are still banks and online lenders that might examine your credit history to determine repayment discipline, particularly when the loan is large. A low score should not ideally disqualify you, but a good score can still work to your advantage.
CIBIL Score Effect on Gold Loan Interest Rate
This is where your credit rating can just creep in and affect the bargain. Two gold pledging borrowers might be offered two different types of gold loan offers. Why? Since the lenders can provide a better interest rate on a gold loan to applicants who have a good history of repaying the loan.
Having a good CIBIL score implies that one is financially reliable. As a result, you may get:
- Affordable interest rates
- Better loan terms
- Increased repayment flexibility
Conversely, candidates with poor credit histories may receive approval at slightly competitive interest rates.
When Does Credit Score Gain More Significance?
Some cases in which the lenders are more attentive to your credit background:
- High-Value Loan Requests: When you are requesting a large amount of loan, the lenders might scrutinize your credit behaviour more keenly in addition to the gold valuation.
- Long Tenure Loans: In cases where the repayment period is longer, credit stability is looked into by the lenders with the aim of minimizing the risk of default.
- Gold Loan App: Automated risk assessment models are used by many contemporary lenders and gold loan apps. Such systems examine various pieces of data, such as credit score, even in the case of secured loans.
Nevertheless, the focus is still significantly low as compared to unsecured loans.
Therefore, when considering a gold loan application, first look into the proper valuation of gold, seek a good lender and acquaint yourself with the loan conditions. Your credit score might not be the key determining factor in this situation, but it might be the benefit that helps you get a better deal.
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