• Car Loan Hypothecation

    In case you are availing a loan to purchase a car, the vehicle is pledged to the bank as an asset. Even though you will have physical possession of the car, the bank will hold the vehicle as security or collateral.

    Hypothecation Process

    Once the car has been purchased by availing a loan, the registration process is completed by the Regional Transport Office (RTO). The Registration Certificate (RC) will have your name mentioned on it as well.

    However, an endorsement will be included in the RC (in the bank’s favour). This is mainly done since the car is owned by the bank till the loan is repaid. The car’s insurance will also be made in favour of the bank. However, you can continue to use the car for business and personal purposes.

    Hypothecation Removal

    • Repayment of Loan: The first step to remove the hypothecation is to repay the loan. The lender’s books must show a nil balance. In case you are prepaying the loan, you must check with the bank regarding the prepayment charges. Certain banks may levy a prepayment penalty of up to 2%.
    • Once the loan has been paid in full, you will receive a certificate from the lender stating that no dues are pending.

    • Collection of Documents: The below-mentioned documents must be collected once the loan is repaid:
      • No Objection Certificate (NOC): The NOC will state that the loan has been repaid in full and the hypothecation can be removed. It is vital that you keep several copies of the NOC. The certificate will need to be submitted to the insurer and the RTO. The validity of the NOC is usually 90 days. Therefore, it is important that you complete the process within the last date.
      • Form 35: This form is issued for the termination of the hypothecation. Three copies of the form must be made. Depending on the state, the format of the form will vary. You can visit the RTO or check online to get the form.
    • Submit the Documents: Next, you must visit the nearest RTO to submit the relevant documents: The documents that must be submitted at the RTO are mentioned below:
      • Pollution Under Control (PUC) Certificate
      • Proof of address
      • Registration Certificate (original)
      • Copy of the insurance policy (attested)
      • Permanent Account Number (PAN) card copy
      • No Objection Certificate (original)
      • Original Form 35 that has been stamped by the bank and borrower

      In case the address that is mentioned on the RC is not the same as the address proof documents that you have submitted, you will need to submit Form 33. Form 33 is submitted for a change of address. You will also need to provide the relevant fee for the transfer.

    • Collect the Documents: The RTO will provide you with the date and time to collect the documents. The updated RC will be provided to you when you visit the RTO. In case mistakes are present on the RC, relevant changes can be made. Once the new RC has been updated, the hypothecation will be removed.

    Can the Car be Sold in case it is Hypothecated?

    In case you wish to sell a car that is hypothecated, you will first need to contact the bank and check for the outstanding dues. Next, you must clear the outstanding amount. However, certain banks may come to an agreement with the new buyer to clear the outstanding loan.

    Once the outstanding amount has been cleared, you must collect the NOC and can then sell the car.

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