Decoding Gold Loan: Significance of CIBIL score in its approval

Gold symbolizes wealth and prosperity in most of the countries and cultures. Gold has been deeply rooted in our traditions for thousands of years. Its monetary value makes it more precious for individuals or families. Gold is considered as a dependable asset for financial security.

Gold loan, also termed a loan against gold, is a type of secured loan in which the borrower needs to pledge their gold jewellery or ornaments as collateral/security with the lender while applying for a loan. The gold articles to be submitted shall be within the range of 18-24 carats only to make the applicant eligible for a gold loan.

Significance of CIBIL score in the Gold Loan approval

CIBIL score is considered one of the vital components of your CIBIL report, as most lenders check your credit score before loan approvals. While applying for a gold loan, the lending banks and NBFCs shall not consider your CIBIL score much, as a gold loan is a collateral-based loan secured by your gold pledged with the lender in the form of a security. Ideally, the lending institutions for gold loan approval require no credit score check.

Gold loans are one of the best available secured lending products for applicants with low credit scores who possess gold articles or ornaments to be submitted as collateral/security with the lending bank or other financial institution.

Features & Benefits of Gold Loan

Several features and benefits that applicants can reap from availing the gold loan are mentioned below:

No End-Use Restrictions: Funds can be availed to meet any financial requirements, as there are no specific restrictions on its usage. The funds can meet expenses, such as marriage arrangements, medical expenses, higher education, home renovation, etc.
Anytime Liquidity (ATL): Gold loans are commonly known as Anytime Liquidity (ATL), as you can avail funds within hours of application submission.
Lower Interest Rate: As a gold loan is a secured loan that comes with a collateral/security to be pledged, the interest rate charged by the banks is comparatively lower, as compared to unsecured loans, such as personal loans, education loans, etc.
Flexible Loan Amount: The nature of gold price is ever-increasing and the loan amount is offered based on a certain percentage of your gold’s value. Therefore, over a period of time, the loan amount can be altered, depending on its value and your requirements.
Higher Loan-to-Value (LTV) Ratio: Usually, the funds offered by lending institutions are not of the full value of the deposited gold. The banks or NBFCs provide a certain percentage of the deposited gold’s value that can range between 60%-90% as per the lender.
No Income Proof required: As the funds are secured against gold articles, generally banks do not require income proof of the applicants. Therefore, gold loans can be availed by both salaried individuals and self-employed professionals without submitting any income proof or salary details.
Nil Processing Fees & Foreclosure Charges: Since the gold loan in many cases do not require any processing fees or foreclosure charges, it becomes the most preferred loan product for applicants with no credit history or low CIBIL score.
Convenient Repayment Options: Gold loan comes with various repayment options, as borrowers can choose from regular EMI payments or pay the interest amount upfront and later the principal amount at the end of the loan tenure.

Things to Consider before applying for a Gold Loan

Gold valuation determines the loan amount: The loan amount depends on the purity of the gold offered as security, as the higher the purity, the higher the valuation. Gold valuation also depends on the purity of gold pledged that shall range between 18K-24K.
Pick the most credible lender: Make sure that the lender you opt for a gold loan is trustworthy and has credibility in the market. It is recommended to opt for a renowned, trusted, and certified financial institution while applying for a gold loan.
Choosing from banks and NBFCs: You need to choose from either banks or NBFCs for availing funds. Usually, NBFCs are more lenient in the process of gold valuation but charge higher interest rates, as compared to private and public sector banks.

Conclusion:

Bank lockers are not just meant to be stored with your precious metal, as your gold articles may help you to overcome dire situations. Gold’s value can be transformed from metal into monetary benefits to meet your urgent cash requirements. Just like all other financial products, it’s important to know and understand the basic, as well as hidden terms and conditions, attached with the loan deal. Only then should you go for a fold loan with a specific lender.