Hypothecation In Car Insurance - Everything You Need To Know

With the introduction of hypothecation, buying a new car is not a luxury anymore. It is a simple concept that lets you take a loan to purchase a car, which you can repay in affordable monthly instalments. This is done to ensure that until the repayment of the loan is done, the car is kept as a security or collateral. Read to know more about hypothecation and its impact on car insurance.

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What is Hypothecation of Car?

Hypothecation is a practice wherein, when applying for a loan you are required to pledge an asset that is the car. It refers to the process of pledging the car as collateral for a loan. This means that the ownership of the vehicle remains with the borrower, but the lender holds a legal right over it until the loan is fully repaid.

It essentially implies that the respective bank holds the car until the time frame of the loan. Undoubtedly, you will have physical possession of the car.

Now, let us take you through the process of car loan hypothecation.

Even when you buy a car, it is registered at the Regional Transport Authority (RTO) in your name. Likewise, the Registration Certificate (RC) will also be issued in your name.

However, it is to be noted and duly understood that the registration certificate of the car will have a note that states that the car is in favour of the bank, which has sanctioned the car loan. This means that until the loan amount is paid back to the bank, the owner of the car is the bank.

Likewise, car insurance coverage will also be in favour of the bank. It is to be understood that the possession of the car will remain with the buyer, of course, and can be easily used.

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/Addition

• 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

Paid the Last EMI of Your Car Loan- Now, What After That?

If you think that after paying the last monthly instalment against the car loan taken, you can now sit at peace. Then, do not sit at ease. The task is still unfinished.

Thinking, what next?

Read below, and will let you know. Listed below are essential aspects that you need to take care:

Update Car Insurance Policy

The information of hypothecation is recorded by the car insurance policy. Whether a new car or a second-hand car on loan, your car insurance policy will include that your car is hypothecated. So once you have paid the whole loan amount, it is imperative to remove the hypothecation of the car from your car policy. 3rd party car insurance is a legal mandate in India. However, it is advisable to opt for a comprehensive car insurance policy.

To remove hypothecation from the car insurance policy, one needs to submit the NOC and revised registration certificate of the car to the car insurance company. An NOC is issued by the bank once

• Collect Payment Receipt: When you have made the last payment of the EMI or made a prepayment to close the loan on the car, without fail, take the final receipt of payment from the bank. This final receipt of payment includes important details such as the total amount paid, the date of the last payment made and the closure of the loan taken on the car.
• Ask for the Repayment Statement: Another essential aspect is to collect the complete repayment statement of the car loan from the respective bank. This is helpful under circumstances of any discrepancy and when updating the credit history. Besides, it is also helpful in times of conflicts arising during the selling process of the car or while claiming car insurance, and so forth.
• Remove Hypothecation: Until the time the loan amount is not repaid to the bank the hypothecation cannot be removed. If you wish to own the car rightfully, remove hypothecation.

You May Also Read How to Transfer Car Insurance Policy?

What Are The Documents Required For Removal of Car Hypothecation?

Once you have paid your last EMI, you must get the hypothecation removed from your RC and car policy as well. Following are the documents required to remove or terminate hypothecation:

• Application in Form 35
• Registration Certificate
• Allotment letter of the vehicle
• Valid insurance certificate
• Proof of address*
• PUC certificate*
• R.C.Book*
• 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.

Is it Important to Remove Hypothecation From the Car?

Yes, it is important to remove the hypothecation from the car. Hypothecation can only be removed if the buyer has repaid the entire loan amount to the bank.

Once you have paid all the EMIs against the car loan, Make sure that you obtain a ‘No Objection Certificate’ (NOC) and Form 35 from the respective bank. Having an NOC essentially implies that the bank has no objection upon the removal of hypothecation. Form 34 states the conclusion of the agreement between the bank and the person who has taken the loan in regard to the hypothecation.

NOC is a document, which assures that you now have no pending dues left with the bank on the loan taken. Most likely, the NOC is sent by the bank via post or even online.

Once you receive the no-objection certificate, you need to submit a copy of the equivalent to the regional transport authority and the respective car insurance company. The validity of the NOC is for three months from the date of issuance.

After the documents are submitted and verified by the RTO, the registration certificate document will get updated, having your name as the owner. Then, the RTO will place a stamp, which indicates that the hypothecation from the car has been removed.

This means that you are the complete owner of the car.

Important: Do Not Forget to Carry RC Smart Card

You will be given a specific day, on that day, visit the RTO and collect the acceptance form along with the details. If required and applicable, make the changes in the form.

Apply for a Smart Card by paying nominal fees. Within a few days of payment initiation, the Smart Card RC can be collected from the RTO. Having a Smart Card RC ensures the rightful ownership of the car.

Wrapping Up!

Therefore, make sure that when the car loan is cleared off, hypothecation needs to be removed. The same needs to be updated in the vehicle's registration certificate.

The information of hypothecation in car insurance should also be taken care of, and the car insurance provider should also be informed. Besides, check and re-check for all the information you have provided and adhere to the process and timelines to avoid any problems later.