Avail the car loans by following the process for a flexible period, which can be repaid in instalments. Possibly, you might be planning to buy the car with a car loan.
If you are then, while you are finalizing the car you will come across this word ‘hypothecation’.
Wondering, what does hypothecation mean in context to a car loan?
In simple words, hypothecation is a practise wherein when applying for a loan and you are required to pledge an asset that is the car. This is done to ensure that until the repayment of the loan is done the car is kept as a security or collateral.
It essentially implies that the respective bank holds the car until the time-frame of the loan. Undoubtedly, you will have the 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, which states that the car is in the favour of the bank, which has sanctioned the car loan. This means that until the time 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.
If you think that after paying the last monthly instalment against the car loan taken and now you can 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:
The information of hypothecation is recorded by the car insurance policy. 3rd party car insurance is a legal mandate in India. However, it is advisable to opt for a comprehensive car insurance policy.
It is important to remove hypothecation in car insurance once you have completely repaid the loan amount. 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.
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 EMI’s against the car loan. Make sure that you obtain a ‘No Objection Certificate’ (NOC) and Form 35 from the respective bank. Having a 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 regards to the hypothecation.
NOC is a document, which assures that now you 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 the 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. It is then that 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.
When purchased the car on loan, it is imperative to include the car purchasing process in the vehicle registration certificate. Listed below are the documents that will be required for the approval:
Listed below are the documents that need to be taken and submitted to the RTO:
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 ownership of the car rightfully.
Wrapping It Up
Therefore, make sure that when the car loan is cleared off, hypothecation needs to be removed. And, the same needs to be updated in the registration certificate of the vehicle.
The information of hypothecation in car insurance should also be taken care 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 problem later.
Moreover, while buying a car make sure that you buy a car insurance policy online or offline and secure yourself from any perils that may lead to an unwanted monetary expense.
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