Now Banks are financing Gold Loans to clients with Bad CIBIL Reports and Scores. As Gold Loans are self-liquidating loans, the banks do not hesitate to ignore low CIBIL Scores. Moreover, the Gold Loans are high-yielding assets to the Banks with minimum risks.
What is wrong with Gold Loans:
In India, keeping jewelry is an ancient tradition. Gold Jewelry and ornaments are also called Stridhan, which is the property that a woman obtains at the time of her marriage, it differs from Dowry in the way that it is the voluntary gifts given to a woman before or after her marriage and has no element of coercion. To sell or pledge the gold ornaments is seen as a loss of prestige in India. But the modern banking industry has resorted to financing again gold ornaments after exhausting the repaying capacities of the individuals out of their known source of income. Banks are now luring the defaulter borrowers to pledge the Gold Ornaments to avail Gold Loan even if the borrower is a defaulter as Gold Loans, being self-liquidating in nature, can be sanctioned to persons with a poor CIBIL score and bad CIBIL Report. It is another issue that the women can sue the Banks for granting Gold Loans to their husbands or relatives, without their express consent as the title and ownership of Gold Ornaments remains with the women as Stridhan. Before taking Gold Loans, one must take into account the following points which can be injurious to Credit Health of Gold Loan seekers:
- Gold Loan should be taken only if the borrower has a regular source of income and the borrower can service the Gold Loan over a period of time by paying EMI’s.
- As the rate of Interest on Gold Loan is very high and more than the present annual rate of appreciation in Gold prices, it is not wise to take Gold Loan. One of my friends took Gold Loan of Rs.3 lac in November 2011 by pledging 200 grams of Gold ( Derived Pure Value of Gold Ornaments) when the price of Gold was about Rs.30000-00 per 10 grams. He could not repay the loan and after application of compounded rate of interest on Gold Loan, the loan amount increased to Rs.4,50000-00 after 3 years when the lending banker sold the pledged gold @Rs.25000-00 per 10 grams which fetched Rs.5,00,000-00 to pay the loan outstanding of Rs.4,50,000-00 and balance amount of Rs.50,000-00 was paid by the lending banker to my friend. Had my friend sold the Gold in November 2011, he could have received Rs.6 lac out of which he had the option of making out FD of Rs.300000-00 in November 2011 after fulfilling his cash need of Rs.3,00,000-00. After 3 years he could have easily purchased 180 gram Gold Ornaments @25000 per gram and his loss would have been just 20 gram of Gold instead of losing all the Gold Ornaments.
- My friend got the final blow when the lending banker sold the Gold Ornaments by e-auction to settle the Gold Loan and it informed the CIBIL that the loan was settled by way of an auction of securities. In normal cases of “Settlement Status of Loans” in CIBIL, the Banks CLEAR the “Settled Status” after getting the waiver amount deposited. But in case of Gold Loans, despite the fact that there was no waiver and Bank did not suffer any loss, the Bank refused to update the loan Status in CIBIL from “Settled” to “Clear” and justified its action by quoting as under:
“CIBIL details have been correctly updated as settlement case since loan has been closed through auction.Therefore we express our inability to refresh the CIBIL details at our end.”
In case of “Settled” cases of Loans and Credit Cards, the Banks change the status to clear as they have the option to “Settle the Loan or Credit Card with or without CIBIL clearance“. But in case of Gold Loans adjusted and closed out of the auctioned sale of pledged gold, the borrowers are deprived of their right to upgrade the “Settled” status to “Clear” status in CIBIL. While my friend has moved the case to the Department of Financial Services (Banking Division) against the concerned Bank, it is advised as under so that you do not suffer from Defect in Credit Report and Low Credit Score:
- Pay the Gold Loan in Equated Monthly Installments and get rid of the Gold Loan as soon as possible.
- In case you are not able to pay the EMI, do not wait for the Loan amount to pile up in such a way that all your pledged gold is used to repay the loan.
- In case you have already committed the above mistakes, please ensure that your Bank does not recover the Gold Loan by Auction.
- It will be better to arrange money from nears and dears to clear the Gold Loan so that you get custody of the Gold and you can repay back to your nears and dears.
- By following the above procedure you will be saved from the ugly position that your Gold Loan is shown as “Settled” by auction in CIBIL Report by so-called modern private banks like HDFC Bank.
All Gold Loan borrowers must chalk out their strategy to reduce their losses and so that the Gold Loans do not tell upon their CIBIL Report and Credit health. Still, have any questions about your CIBIL Report, Tell us Your CIBIL Problem in detail before it damages your Credit Reputation forever.