Does Taking Gold Loan Affect the Credit Score?

Does Taking Gold Loan Affect the Credit Score?


Gold loan is a type of loan issued against gold jewellery which is provided as collateral security. These are easy to access and can be applied for through banking and nonbanking financing firms at a comfortable gold loan interest rate.

Gold loans are flexible for use as these have negligible terms and conditions for use and require only gold material as security, unlike other pathways of loans where there is a lot of tedious work involved.

Gold loans can be issued to fulfil needs like wedding purposes, educational needs, or medical emergencies.

 Credit score:

A credit score is a measure of the capability of the borrower to pay back the loan amount along with the loan interest amount.

The three-digit number of the credit score is one of the most important criteria which is viewed by the lending firms before giving loans.

The credit score reflects how an individual manages and handles credit payments.

When an individual delays the payments of the loan EMIs or the bills of credit cards etc., this contributes to the negative impact of the credit score. This negative impact on the credit score would mean a lot of difficulty in applying for future loans.

Gold loans and credit score:

Not many people know that applying for a gold loan could have an impact on their credit score, and that is negative. 

It might come as a shock to know this fact:

When an individual applies for a gold loan, a ‘hand inquiry’ is run by the lending firms. ‘Hand inquiry’ is a phrase used when the lending banks and firms request the individual’s credit report stating the credit score from the credit bureaus to decide whether the loan application should be approved or not.

A few inquiries might report that the individual is credit hungry, meaning that the individual needs a loan desperately, or the individual is going for a loan amount more than the requirement- both of which are not a good sign.

Gold loan payments:

If the lending bank approved the gold loan application, then the individual is required to follow all the terms and conditions and repay the loan as well as the gold loan interest rate amount accordingly.

If the individual successfully pays the gold loan following the gold loan interest rate, then the individual’s credit score boosts substantially and negatively impacts the credit score if the individual fails to do so.Another option you can consider is cash for gold which is instant process. Gold Loan lends 75% at LTV whereas You can also avail Cash for Gold which would be 99% around the actual value

Ways in which gold loan affects the credit score:

1. Periodic payments:

Being regular and on time with loan payments is very crucial to build a good credit score.

Borrowers who are regular with their EMI loans are exuded with responsible credit behaviour which attracts the lenders to provide them loans as compared to borrowers who have an irregular loan payment history.

With a good credit score, lenders might even provide an attractive and lower gold loan interest rate. 

2. Loan Default:

Individuals who fail or are not regular with the repayment of the loan along with the gold loan interest rate amount as per the obligation of the loan contract are loan defaulters.

A day’s delay of repayment is even taken into account by the credit bureaus and adds them to the defaulter’s list! This also negatively impacts the credit score and reduces it.

Normally, if the individual is late for repayment by thirty days, a penalty, as well as few additional charges, is levied. 

But, if the gold loan repayment is delayed by consecutively ninety days, then the individual gets an NPA label, that is, a non-performing asset label on the credit report.

This title bars the individual from getting any loan in the future from any of the lending firms.

Furthermore, the lender has the right to issue a notice against the borrower and also sell the gold article submitted as collateral security to meet the loan amount.


Above are the various ways in which a gold loan can affect the credit score. A lot of inquiries would negatively reduce the score, and timely payments can help boost the score.

Loan defaulters have a lot of consequences and future risks as well. The consequences might be different for each situation and kind of people. Taking on a whole situation, however small the defaults might be, the negative impact on the credit score is going to be substantial.

The consequences involve late payment charges, legal notice, other penalties, and in worst cases, auction of the gold material.

It is advisable for the individual opting for loans to always be punctual with the repayment. 

Busy people who often have the chance of missing the date should set reminders on phones, computers, and every other possible device. Setting a reminder would constantly remind the individual to pay the loan amount and would help become punctual.

Another step that an individual can take is to ask their lenders to directly deduct the monthly amount from their accounts and avoid any hassle!

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