Beware! Gold Loan default does affect your Credit Score.

3 min read

Gold Loan (also a type of Mortgage) is a loan wherein gold jewelry is provided as collateral security. Gold Loans are offered by nationalized banks, private banks, and other financial institutions at affordable interest rates. Compared to other loans that may stipulate some fix terms and conditions for end-use of funds, Gold Loans provide flexibility to the customers to use the funds for any purposes like education, medical urgency, wedding, etc.

The way in which you handle and manage your credit payments are reflected in your credit score (a numeric summary of your credit history). Delayed payments of any loan EMIs, credit card bills, etc will have a negative impact on your credit score. Poor credit score can make difficult for you to take any additional loans.

People who are in need of money, but have a poor credit score, can use Gold Loan as an opportunity to improve their credit score. Several financial institutions offer loans if sufficient collateral is pledged, in this case, gold ornaments/articles in a range of 18-22 carat. Prompt repayment of any loan can boost your credit score significantly, and Gold Loan is no different. Hence, a Gold Loan taken and repaid early or on time will have a more positive impact on your credit score rather than taking an unsecured personal loan. Notably, financial institutions do not see the delayed payment of secured loans especially Gold Loans as negatively as delayed payment of other unsecured loans is seen.

Further, the interest rate on other unsecured loans may be higher than the gold loans. Hence, Gold Loans may prove to be cost-efficient as well.

Source: IIFL

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