What is hypothecation in car insurance and how to remove it?
What is hypothecation in car insurance and how to remove it?
Car loans make it possible for you to purchase your dream vehicle. When you buy a car via a loan, the car is registered in your name. The lender who has paid the large sum to the car dealer also becomes a hypothetical owner of the car. Even though you possess and run the car, it is still collateral for the lender. Such hypothecation is acknowledged in your car registration certificate by the Regional Transport Office (RTO) and in the car insurance policy. Once you have paid off the car loan, you are required to get hypothecation removed from your car papers.
Checking and removal of the hypothecation status from RTO:
The process for checking and removal of vehicle hypothecation may vary from one state to another. Generally, the Registration Certificate (RC) will bear hypothecation to who is the car loan provider. As of now, the mParivahan app and its related web portal can be used to check the status of the car being hypothecated to a lender or not.
In order to remove the hypothecation status of the car from the RTO:
First, you will need to pay off your car loan, obviously!
After that, the lender will issue a No Objection Certificate(NOC) to you
Submit this NOC to the relevant RTO along with the original RC card and some other supporting documents.
Once RTO is done with their process, you will receive a new RC.
In many states, the removal process is now online, but some states are still digitizing their system and hence physical paperwork may be needed. Check with the concerned RTO for exact details. While you are at it, make sure that your car insurance is up to date. Buy a car insurance policy online if you do not have one.
Checking and removal of the hypothecation status from Insurance:
The process of checking hypothecation on insurance is much simpler. Just call up the insurer customer service and give them policy details. They will let you know about hypothecation status.
Removal of hypothecation from insurance is also simple. Just submit the NOC from the lender to the insurer and they will remove the hypothecation marking and issue an updated policy document.
The importance of removal of hypothecation of your car papers
Removal of hypothecation from your car documents is very important for a slew of reasons. These include:
Ownership issues: Mere possession of the NOC from the lender does not automatically imply car ownership. Unless you notify the nearest RTO and act upon the car hypothecation removal, you are not the true owner of the car.
Complexities in selling the car: Hypothecation removal becomes critical, especially when you are planning on selling your car. If not done, you cannot proceed with the transfer of car ownership process to the new buyer.
Complexities in total loss claims: In case of accident or theft, you end up with the car being a total loss, the clearance of such claim will first go-to the lender. If any shortfall occurs, you will have to pay that to the lender to close the loan. In the case of non-removal of hypothecation, then you will face issues during such a claim.
Complexities in insurance renewal: Without the removal of car hypothecation, you might face extra scrutiny when it is time to renew your car insurance or shift to a new insurance provider for better coverage.
Documents required for hypothecation removal from RTO:
Depending upon the lender involved in the picture and upon your RTO, you may be required to bring all, some or more of the documents listed below:
Car registration smart card or RC issued by the same RTO, which mentions the hypothecation details
NOC issued by the lender
Filled in Form35 , which works as the application to RTO for hypothecation removal
Loan closure letter and/or loan statement from the lender
Pollution Under Control (PUC) certificate that is currently active and valid, preferably issued in the same state
Identity and address proof of the person who is the named owner of the car
Valid insurance policy, pro tip: you can buy a third party car insurance policy online if your policy has expired.
Conclusion
Remember that simply paying off your car loan and collecting the NOC from the lender does not complete the ownership-related paperwork of your car. Unless you have applied to the RTO and insurance company for hypothecation removal and received the new RC and insurance copy, you are not in the clear!
Disclaimer:
The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.
This blog has been written by
S. Gopalakrishnan | Motor Insurance Expert | 40+ years of experience in insurance industry
A veteran in insurance industry. S. Gopalakrishnan is a name to reckon with in the field of reinsurance, he has headed the Reinsurance department and has rich experience in other fields of motor insurance. He loves to share his opinion on latest topics in the insurance industry and how he can help people in safeguarding their assets using insurance products.
Mr. S.Gopalakrishnan recommends "HDFC ERGO for your vehicle insurance needs, it has always put customer’s interest at the forefront, with round the clock assistance to deal with emergency breakdown issues and hassle free claims process. You can be assured of complete and reliable guidance through the whole process."
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