Gold is a part of Indian culture and can be of great help when a financial crisis arises. Gold loans are a popular way to raise funds in a time of need. By opting for a gold loan, you can avail of capital without having to lose your precious gold. Along with easy processing, the wide availability adds to the popularity of the loan. Many banks and non-banking financial companies have gold loans in the list of their financial offerings. The most alluring feature of this kind of loan, however, is that it provides financial assistance and helps in improving your credit score as well.

How does a gold loan work?

The gold loan works in a very simple manner. You take your gold to a lender and borrow money by keeping your gold as collateral. The borrowed amount is decided based on the quality and quantity of your gold along with the current market value of gold. Basically, if you have gold may be in the form of jewelry and articles, you can avail of a gold loan. Note that most Indian banks and non-banking financial corporations accept the gold purity certified between18K and 24K. 

Advantages of gold loans on maintaining and improving your credit score

No CIBIL Score check

The Credit Information Bureau India Limited or CIBIL offers credit ratings for individuals and companies. You will be eligible for getting loans from various financial corporations depending on your CIBIL score. Most agencies do not provide a loan to a person having a score or rating less than 750. Every time an agency pulls up your CIBIL score, your rating drops significantly and increases the chances of rejection.

While in the case of gold loans, you don’t need a CIBIL score to get the loan approval. This way, if you get a gold loan, your CIBIL score will remain unaffected, allowing you to get other loans if you need them in the future. On the other hand, prompt repayment of gold loans can significantly increase your CIBIL score. So, it’s a win-win.

Pay for other loans and keep your credit score high

In most banks and NBFCs, the approval of the gold loan and transfer of funds get completed within a day, while, in terms of other loans, it can take weeks. Therefore, if you have another loan repayment date or EMI coming, you can simply take a gold loan and repay the others. This way, your credit score will remain excellent. The CIBIL score increases when you pay up your loans, EMIs, and credit card bills on time, allowing you to get other loans if needed.

Flexibility of loan repayment

Gold loans are considered the most flexible loans as the financial agencies can give you extra time or increase the duration of your loan tenure if you need for the loan repayment. In this pandemic era, it is an excellent deal. On the other hand, if you can repay the loan amount earlier than the tenure, you will get some discounts mostly in less interest, and you have to pay less EMIs.

Gives you power over your collaterals

Some banks like the SBI allows payment and return of collateral partly. Say you have given the bank four ornaments and you have repaid the loan amount with a more or equal value of one ornament. Therefore, you can ask the bank to give you back that one particular ornament. Later, if you need more money, you can apply for another gold loan using that particular ornament. All these won’t affect your CIBIL score. This is not possible with any other loan schemes available in India.

No guarantor needed

Sometimes, in terms of loans, the bank or NBFC may require a guarantor for the loan and the guarantor will be responsible if you become a loan defaulter. Now, if you loan defaulter, you and your guarantor’s credit score both will get heavily affected. But, in gold loans, you do not need any guarantor. However, remember that if you fail to repay the gold loan, you will lose your gold.

Use the loan amount for any purposes

CIBIL tracks your loans such as education loan, housing loan, car loan, and personal loan, while the loan issuing agency tracks how you are using the money. If you are found using the fund for different purposes rather than the issuing reason, you may get fined and your CIBIL score will take a nosedive. While in gold loans, you can do anything you want; the loan offering agency won’t even ask you why.

As gold is considered as high-value collateral, and since the financial institutions do not lose money on gold loans, they offer this level of flexibility. This level of flexibility is very hard to find in contrast with any other loans and the benefit of improving your credit score.

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