In India, owning a car has now become easy due to the easy financing options available. One can now easily opt for a loan through an NBFC or a loan financing facility. However, when providing you with a finance facility basis your eligibility, the financer requires you to submit a collateral. In case of car finance, the car is treated as a collateral and the ownership of the same stays with the lender until you repay the loan in full. The record of the car being purchased on loan is informed to the Regional Transport Authority and the same is mentioned in your car’s registration certificate by way of Hypothecation.
When you purchase a car on loan, the RTO maintains a record of the same in the registration certificate of the vehicle. The RC includes car owners details such as name, address, vehicle number and details of the lender. This is known as Hypothecation. Along with the mention in the RC, the details of the lender are also mentioned in the car policy. Since the lender finances the car, in case of total loss or theft of the vehicle, the coverage amount is given to the lender until the Hypothecation is deleted.
While it is necessary to omit Hypothecation details which are in the favor of the lender, it is imperative to know that such details can only be removed on full repayment of the loan. On making full payment, the lender will issue a no objection certificate indicating that no dues are pending from the vehicle owner's end and the Hypothecation can thus be removed.
Removal of Hypothecation is also essential to ensure that the insurance company and the RTO authority has a record of the same. At the time of selling the car, it is also essential to ensure that all the dues are cleared as without removal of hypothecation you cannot sell the car.
Once you repay the loan in full, the lender will issue a NOC which you have to submit along with required forms to the RTO authority.
In case if you have an existing loan on the vehicle then it is important to know that the car insurance claim amount will first be given to the insurance company since they have the charge of the vehicle. The remaining amount will be paid to you. This is possible only in case of theft or total loss of the vehicle.
Deleting hypothecation from car insurance is easy if you follow the below steps
This type of car insurance provides coverage to third party life and property and does not cover the insured vehicle
This type of car insurance provides coverage to your vehicle as well as third party and property
This type of insurance provides coverage for your car’s damages and losses including events caused due to man made, natural calamities, and theft.
Hypothecation refers to pledging the asset as a collateral to avail loan from a bank or any financial institution. In case you purchase a car on loan, then the bank will hypothecate the vehicle until the repayment of the loan is made in full.
Removal of hypothecation can only be done if the loan is repaid. Application form 35 has to be submitted along with the bank NOC to the RTO.
The process to check the hypothecation status of the vehicle differs from RTO to RTO. However, for most of the states the hypothecation can be checked online on National Transport Service Portal, Parivahan.
The process for removal of hypothecation from RC online varies from state to state. However, to do so, you need to visit the state government’s transport website, upload the required documents and the forms and wait for approval.
