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Secure Your Car With The Super Car Insurance Plan!

Believe it or Not! Save upto* 75% on TATA AIG Car Insurance

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Hypothecation in Car Insurance

  • Author :
  • TATA AIG Team
  • Published on :
  • 22/10/2021

Owning a car is not a luxury anymore, but car loans are helping the common folks own a car for their family. In a car loan, equal monthly instalments or EMIs get deducted automatically from the buyer's account. In this way, the pressure on an individual to pay the entire amount gets divided into monthly instalments. During the car loan process, the borrower will come across hypothecation.

Hypothecation is referred to pledging an asset to the bank as collateral in exchange for a loan. In case the borrower fails to repay the loan, the bank or the lender can hypothecate the asset and pay the remaining balance amount. It is the same for vehicle hypothecation, where the lender remains the hypothetical owner of the vehicle until the borrower repays the loan.

In this article, you will get to know all about hypothecation right from hypothecation meaning to hypothecation removal.

What is Hypothecation in Car Insurance?

When you purchase a car using a car loan from a bank, the bank also becomes a hypothetical owner of the car until you repay the loan. It is deposited as collateral security in lieu of taking a bank loan.

The registration certificate or RC of your car, as well as the car insurance policy, will mention the hypothecation. After completely paying off the car loan, you are required to remove hypothecation from car papers.

Initially, the car will be registered in the owner's name at the local Regional Transport Office (RTO). But, if the car is bought and financed by the bank loan then the RTO will make a record in the Registration Certificate (RC) that the car has been hypothecated by the respective bank.

The car insurance provider will also record the loan on the policy paperwork until you, the policyholder, regain full ownership of your car. Remember that vehicle hypothecation does not allow you to sell or transfer your vehicle. You have to retain complete ownership of the vehicle in order to transfer it to other states or sell it.

How Can One Add Hypothecation in the Car Policy?

It is quite simple to add hypothecation in the car policy online. You just have to follow certain steps and provide the required documents as mentioned below:

The process is continued from the point when the insurance provider will mention the hypothecation of the car in the policy paperwork. Further, there will be a series of questions that the insurer will ask the policyholder. The insurer will inquire whether you have purchased the car through self-financing or a bank loan. The same questions and the process will be followed at the time of renewal of the car policy online.

Generally, when you submit the RC details to the insurer, they get all the information about your bike or car. The RC itself mentions hypothecation if you have purchased a new car through bank finance. You may face the questions when buying 4-wheeler insurance for a second-hand car or bike insurance for a second-hand bike. Before issuing the four-wheeler insurance, insurance firms also inquire about some other documents. These documents are —

  • The application for hypothecation endorsement or Form 34
  • Online registration certificate
  • Attested copy of car owner’s PAN card, and car owner’s address proof
  • Authentic car insurance (if it is being renewed)
  • PUCC or Pollution under control certificate
  • The last receipt of the charges or fee paid at the time of endorsement of hypothecation by RTO

One needs to have these all documents in hand at the time of adding vehicle hypothecation in the car policy.

How To Remove the Hypothecation From RC? — Procedure for Hypothecation Removal

Once you have paid off the complete bank loan, you should get the hypothecation removal process done. Both the regional transport office (RTO) and the respective bank (from which the loan is being taken) will be involved in this hypothecation removal process.

First, you need to get the No Objection Certificate (NOC) from the respective bank. After that, submit the NOC to the four-wheeler insurance provider for the removal of car hypothecation from the insurance policy. The process is similar for 2-wheelers.

  • Cancel out your vehicle hypothecation

For cancelling out the vehicle hypothecation, you need to pay the entire loan amount. It doesn’t matter how many EMIs are left. You can pay it in one go as well. Once you pay the entire loan amount, collect all the necessary documents from your lending bank. These documents will testify that you have fully paid off the loan and are thus necessary for the hypothecation removal process.

  • Take documents to the RTO and submit the hypothecation removal application

The NOC needs to be submitted to the RTO along with other documents, like Form 35, valid vehicle insurance policy and PUCC. After submission of these documents, you have to submit the hypothecation removal application to the RTO. Here you have to pay certain applicable RTO charges for the hypothecation removal procedure.

Procedure to Check the Hypothecation Termination or Removal Status

To check and verify the hypothecation termination and removal status, you can consult the concerned RTO. Other than this, you can visit the RTO’s official website to check the progress of your application. For most states, you can access services through the Parivahan online portal, a national transport service portal.


Removing the vehicle hypothecation is crucial in getting the ownership of your vehicle. Just follow the process mentioned in this blog. Make sure you have a valid PUCC and motor insurance policy. While the law only mandates a third-party insurance policy, we suggest you go for comprehensive car insurance for all-around protection. Consider Tata AIG for all your car and bike insurance needs.

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Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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