Hypothecation In Car Insurance: Everything You Need To Know
If you have bought your car on a loan, you have probably seen the lender's orRead more
What is Hypothecation of Car?
Hypothecation is a legal arrangement in which your car serves as collateral if you have taken a loan to buy the car. While you can drive the car, the lender (a bank or NBFC) has a legal claim to it until you fully pay the loan amount.
The hypothecation status is officially noted on your Registration Certificate (RC) as well as in your car insurance policy. Once you clear all the EMIs, you can then have legal ownership of the car by submitting an application to your concerned RTO (Regional Transport Office) to have the hypothecation removed from your RC.
Why is Hypothecation Important in Car Insurance?
When a car is hypothecated, the lender or the bank has a financial interest in the vehicle. Have a look at why hypothecation is critical in car insurance:
- If your hypothecated car is stolen or declared a total loss (damaged beyond repair)
- The insurance company will pay the claim amount, which is the Insured Declared Value (IDV) at the time of claim, to the bank to settle the outstanding loan balance (if any).
- However, without hypothecation, the entire claim amount will be transferred directly to your bank account.
- Moreover, for a valid claim settlement, the details on your car insurance policy must match those on your car's RC.
- If you want to sell your car, its insurance cannot be transferred to the new owner until you get the hypothecation removed from the RC.
How to Add Hypothecation of Car in the RC?
HP endorsement or addition of hypothecation in the vehicle's registration certificate can be done by following these steps:
- Apply for entry of hypothecation agreement in the EC by filling out Form 34. Make sure the form is duly signed by the registered owner of the vehicle and the financier.
- Submit the RC along with the prescribed fees for addition to the concerned RTO.
Documents Required for HP Endorsement in RC
You need the following documents for the hypothecation endorsement in the vehicle registration certificate:
- Application in Form 34
- Certificate of registration
- Certificate from the financier for having retained full dues from the financier (for deletion case only)
- Proof of address*
- Pollution under control certificate*
- R.C.Book*
- Valid insurance certificate*
- Attested copy of PAN Card or Form 60 & Form 61(as applicable) *
- Chassis & Engine Pencil Print*
- Signature Identification of the owner
How to Remove Hypothecation from RC?
To remove hypothecation from a car's registration certificate, follow this simple process:
- Take Payment Receipt and NOC: When you have made the last payment of the EMI or made a prepayment to close the car loan, take the No Objection Certificate (NOC) and Form 35 (Notice of Termination of an Agreement of Hire-Purchase/Lease/Hypothecation) from the lender.
- Application for Hypothecation Removal: After collecting the necessary documents, submit the application form and required documents for hypothecation removal at the concerned RTO, along with the hypothecation fees.
- Get a Copy of the RTO's Acceptance: At your next visit, collect the acceptance form, which acknowledges the removal of hypothecation and other vehicle details. Carefully review the form and verify if all the information is correct. In case of any discrepancy, get it rectified as soon as possible.
- New RC Fee Payment: Now, submit all the documents, the acceptance form, along with the fee for the new RC Smart Card. You will be provided a receipt along with the date on which you can collect your new RC with hypothecation removed.
You May Also Read: How to Transfer Car Insurance Policy?
Documents Required For Hypothecation Removal from RC
The following documents are required for the removal of hypothecation from your car's RC after the loan closure:
- Application in Form 35
- Registration Certificate
- Allotment letter of the vehicle
- Valid insurance certificate
- Proof of address*
- PUC certificate*
- Attested copy of PAN card or Form 60 and Form 61 (as applicable) *
- No Objection Certificate from financier*
- Chassis & Engine Pencil Print*
- Signature Identification of owner*
Note: Documents with (*) may be required in certain states.
Wrapping Up!
Hypothecation plays a significantly important role at the time of raising a car insurance claim, renewing your policy, or selling your car. After making the complete repayment of your car loan, ensure that the hypothecation is removed from both your RC and insurance policy. Additionally, carefully check and verify that all the details in both these documents are accurate to avoid any complications in the future.
