Hypothecation in Car Insurance

When you purchase a car using a car loan from a bank, the bank 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 vehicle hypothecation details. After paying off the car loan completely, you are required to complete HP removal from RC, car insurance and other 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 a bank loan, then the RTO will make a record in the Registration Certificate (RC) that the respective bank has hypothecated the car.

The insurer will also keep a record of the loan on the policy paperwork until the policyholder regains full ownership of the car. It is important to 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.

To add hypothecation to your car insurance, you must get it added to your vehicle registration certificate. Once the vehicle hypothecation details are available on the RC, the insurance provider adds it to the car insurance policy document.

Here is how you can add hypothecation to your insurance.

• The insurer will ask the policyholder a series of questions, including whether you purchased the car through self-financing or a bank loan.

• Generally, when you submit the RC details to the insurer, they get all the information about your car. The RC itself mentions hypothecation if you have purchased a new car through a bank loan.

• You may be asked these questions when buying a new car insurance policy for a second-hand car. Additionally, these questions can also be assessed at the time of policy renewals. Before issuing the car insurance policy, insurance firms also inquire about some other documents. Find the compiled list below.

Required Documents to Add Hypothecation in Insurance

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

• The application for hypothecation endorsement or Form 34

• Online registration certificate

• Attested copy of the car owner’s PAN card

• 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

Once you have paid off the entire 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. Then, submit the NOC to the insurance provider to remove car hypothecation from the car insurance policy.

• 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 paid off the entire loan and require the hypothecation removal process.

• Submit Documents to the RTO

• The NOC needs to be submitted to the RTO along with other documents, such as Form 35, a valid vehicle insurance policy, a no-objection certificate, and PUCC. Without an NOC, hypothecation details cannot be removed as it is the primary document to be submitted as proof to request cancellation.

• Submit HP Removal for RC Application Request

• After submitting these documents, you must submit the hypothecation removal application to the RTO. Here, you have to pay the applicable RTO charges for the hypothecation removal procedure. In most states, the hypothecation cancellation fee is ₹100. Once the payment is received, RTO will cancel the hypothecation on RC, giving you complete ownership of your car.

**Required Documents For Removing Hypothecation on RC and Insurance?

• No objection certificate

• Valid car insurance policy

• Application Form 35 (ask at the RTO or download the same from the Parivahan website.)

• Pollution under control certificate

• Vehicle owner address proof

• Vehicle owner's PAN card

• Vehicle registration certificate

To check and verify the hypothecation termination and removal status, you can consult the concerned RTO. You can also 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.

Often, policyholders delay HC removal from RC and insurance even after paying their entire loan amount. However, it is recommended to get it terminated as soon as you clear your loan payment for the following reasons.

• It helps simplify car ownership and gives you complete vehicle ownership without any hassle.

• In some cases, the removal of hypothecation can lead to lower premiums as the bank does not have any ownership of your car. However, please note that this is not guaranteed and can vary from insurer to insurer.

• You also benefit from complete freedom regarding car modifications, ownership transfers, and other necessary car-related decisions without any bank approval.

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