Car ownership, facilitated by accessible car loans with monthly EMIs, becomes essential. Yet, in the loan application process, borrowers commonly encounter hypothecation.
What Is Hypothecation In Car Loans?
Hypothecation involves offering an asset, like a car, as collateral to a bank in exchange for a loan. The bank retains the right to seize and sell the asset if the borrower defaults on the loan. In car loans, hypothecation implies that the lender maintains vehicle ownership until the borrower repays the loan.
Car Insurance Hypothecation
The car insurance process begins with the insurance company inquiring about the vehicle’s hypothecation status and financing method, typically through questions posed to the policyholder during policy issuance or renewal.
When obtaining a car loan, the bank becomes the hypothetical owner of the car until the loan is fully repaid. This is reflected in both the vehicle’s registration certificate (RC) and car insurance policy. Once the loan is settled, the hypothecation status must be removed from the vehicle papers.
Adding Hypothecation To A Car Policy
Once the insurance company mentions the car’s hypothecation in the policy documentation, the policyholder is asked about the vehicle’s financing method—whether through a bank loan or self-financing. This process is consistent during online policy renewals. Providing the RC details informs the insurer about the vehicle, including hypothecation if financed through a bank. When purchasing insurance for used cars, additional documents may be requested, such as:
- Form 34, the application for hypothecation endorsement
- Certificate of Online Registration
- Affirmation of the vehicle owner’s address and a copy of their PAN card
- Original car insurance(if you’re renewing it)
- Pollution under control certificate, or PUCC
- The most recent invoice for any fees or charges received at the time the RTO endorsed the hypothecation
When adding a vehicle hypothesis to a car policy, these documents must be present.
Removing Hypothecation From RC
The removal of hypothecation involves several steps:
Obtain No Objection Certificate (NOC): The borrower must obtain an NOC from the lending bank, confirming the total loan repayment.
Submit NOC To Insurance Company: The NOC is submitted to the insurance company to remove hypothecation from the policy.
Repay The Loan: The entire loan amount must be repaid, regardless of remaining EMIs.
Collect Documentation from Lending Bank: Gather documents from the bank confirming complete loan repayment.
Submit To RTO: Submit the NOC, Form 35, current car insurance policy, Pollution Under Control Certificate (PUCC), and hypothecation removal application to the Regional Transport Office (RTO). Pay applicable fees.
Verifying Hypothecation Removal Status
To check the status of hypothecation removal, contact the relevant RTO or use the official RTO website. The Parivahan online portal offers a national platform for tracking application statuses.
Getting ownership of your car requires removing the vehicle hypothecation. Adhere to the steps outlined in this blog. Verify that your car insurance policy and PUCC are still in effect. If you still need to, you must know how to renew your car insurance and do the same. Even though the law only requires third-party insurance, we advise getting comprehensive car insurance for complete protection. Claims are subject to terms and conditions set forth under the motor insurance policy. *
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*Standard T&C Apply
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
