You have a few options for paying for a new or used car, depending on whether you are buying new or used. You have the option of paying off the vehicle in full straight immediately or taking out a bank loan. The car is collateral for the bank because it contributes to paying a portion of the vehicle’s worth. In other words, until the full loan amount is paid off, the car becomes a surety or guarantee. As a result, the car’s ownership remains with the bank until the loan is fully paid off. The process of pledging your car to get a loan is known as ‘hypothecation.’

What is Hypothecation in Car Insurance?

When you purchase a car with a bank loan, the vehicle is registered in your name at the local Regional Transport Office (RTO). Despite being financed by the bank, the Registration Certificate (RC) will bear your name. However, the Regional Transport Office will indicate in the RC that your car has been hypothecated in favor of the particular bank. The hypothecation in car insurance, like this process, will be in favor of the bank from which you obtained the loan. The car will stay in the bank’s possession until the entire debt is paid off.

How to Add Hypothecation to Car Policy?

Whether you’re purchasing a new or used automobile with a bank loan, the insurance provider will note that the vehicle is hypothecated in the policy document. Even if you’re renewing your policy with a different provider, you’ll be asked if the vehicle is financed or if it was purchased outright. Before insuring a car, insurance firms also want the vehicle’s RC, which contains information about the hypothecation.

Documents Required for Hypothecation of a Vehicle

If you plan to buy a car with a bank loan, the RTO will include hypothecation information in the RC. The following documents must be supplied when registering a car that has been hypothecated through a bank:

  • Original Certificate of Registration.
  • Form 34, which serves as a hypothecation application.
  • Car insurance that is valid.
  • Proof of the car owner’s address.
  • Certificate of Pollution Control (PUCC).
  • Receipt of the fee for the RTO’s endorsement of hypothecation.
  • A copy of the car owner’s PAN card that has been attested.

How Can Hypothecation Be Removed From A Car Insurance Policy?

Once you’ve paid off your bank loan in full, you can have hypothecation removed from your automobile title. This is an administrative procedure involving both the bank and the RTO in question. You can phone or write to your insurance company, attaching the NOC, to cancel or delete it from your car insurance policy once you have the NOC from the bank.

You can’t sell or transfer ownership of the automobile unless the hypothecation is removed.

  • Step 1: The first step is to cancel the vehicle hypothecation.

The hypothecation on your car can only be removed if you pay off your car loan. To begin the process of being removed from RC, you must fully return the loan. The bank’s records should show that there is no outstanding balance on the loan you took out. You have the option of repaying the loan at the end of the term or pre-closing it. The bank or lender will give a No Objection Certificate (NOC) once the payment process is completed, certifying that you have paid the bank in full.

  • Step 2: Taking Documents to the RTO

The bank will issue the following documentation to remove the hypothecation from your car after you have paid off your vehicle loan. These are the documents you’ll need to deactivate your account:

  • No Objection Certificate (NOC): The NOC confirms that the hypothecation arrangement between the bank and the loan account holder has been completed. This is the key document that the RTO requires in order to cancel the notation on the RC.
  • Form No. 35: The form serves as an application to the RTO for the hypothecation to be cancelled. This form also verifies that the loan between you and the bank has been closed.
  • Valid Insurance Policy: To complete the procedure of terminating the hypothecation on your car, you must produce a valid car insurance policy.
  • Pollution Under Control Certificate (PUCC): To cancel or remove the hypothecation on your car, the RTO also wants the PUC certificate.
  • Step 3:Submitting the Application for Hypothecation Removal

You must go to the respective RTO to present the above-mentioned documents to cancel the hypothecation after getting them from the lender or bank. Once you’ve submitted all of the appropriate documentation and paid the RTO fees, the officer will begin the removal process.

  • Step 4: Fee for Hypothecation Cancellation

For the hypothecation on your car to be cancelled, you must pay the RTO charge. The fees differ depending on where you live in the country. To find out the prescribed fee for your state, go to the respective RTO’s or transport department’s online portal. The RTO will cancel it once you pay the charge and provide the relevant documentation.

How to Check Hypothecation Cancellation/Removal Status?

The cancellation method varies by state, therefore consult the relevant RTO to learn how to monitor the progress of your hypothecation termination. However, in most states where services are available through the Parivahan web portal, a national transportation service site, you can monitor the status of your application on the page.

The Procedure for Receiving a Smart Card RC:

The RTO will issue a new RC while terminating the hypothecation on your vehicle. By paying the required costs, you can apply for a Smart Card RC. Within the specified time range, the RTO will issue the new RC Smart Card. Obtain a revised or updated RC to ensure that the car’s title remains in your name and is not hypothecated to the lender or bank.

Is it Vital to Remove a Car’s Hypothecation?

Yes, if the loan has been paid in full to the lender, it is necessary to terminate or remove the hypothecation of the vehicle. Once you’ve paid off your loan, make sure you get a letter from the bank saying that your loan has a nil balance or no balance. The NOC, on the other hand, is not the end of the process. You must terminate it with the appropriate RTO. When the relevant paperwork are submitted to the RTO, the transportation department will remove the restriction and transfer the full title to the car owner. This guarantees that you are the sole owner of the vehicle.

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