Hypothecation in car insurance and how to remove it?

Hypothecation in car insurance is a term prevalent while purchasing car insurance especially if you have bought the vehicle on loan. There are ways to check it and one can also find how to check hypothecation on RC as well.

If you are buying a car with a loan, then hypothecation is a concept that arises. You will accordingly have to hypothecate your car to the financial institution, meaning that it will be the vehicle owner until you pay off the loan. Any repayment defaults mean that the car may be sold off by the lender for getting the outstanding amount of the loan. Before getting into how to check the hypothecation of a vehicle, you should know more about the actual process itself.

KNOW MORE : Benefits and Features of Car Insurance Policies.

Procedure to Remove Hypothecation From RC book

Upon purchasing your car, you will have to get it registered with the RTO (Regional Transport Office). It will then provide the RC or registration certificate where your name will be there as the owner of the vehicle. However, if you have taken a car loan, then the vehicle hypothecation details will also be present here. The RC book of the car will have all the information about hypothecation and the date of the same along with the lender’s name and details. There is also the hypothecation in insurance, since your policy will also mention these details and they will be present in your policy papers.

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Adding hypothecation to your insurance policy

In most cases, the hypothecation information is added by the insurance company automatically once you purchase your policy. While buying your plan, the company will need the submission of the RC book which has all this information mentioned beforehand. The company will note down these details for the policy as well. While the insurance plan is being renewed, you may be asked about the status of the loan. The RC book will also be examined for verifying hypothecation related information. If your loan is still ongoing, then the policy will also contain the same. You can also apply to remove this information if you have paid off your car loan already.

Car hypothecation documents

• RC (Registration Certificate) of your car (original).
• PUC certificate.
• Hypothecation application (Form 34).
• Proof of address.
• Fee receipt for hypothecation RTO endorsement.
• Valid third party insurance documents for coverage of the car.
• Self-attested PAN Card copy.

Getting hypothecation removed

How to check if loan exists or cleared on vehicle? Alternatively, how to check if hypothecation is removed online? You should know that an application is a must for removing hypothecation from the RC book once you have paid off your car loan. You will also have to get these details removed from your car insurance policy.

How to remove hypothecation from RC?

• You can get the NOC from the lender after paying off your car loan.
• You will have to apply at the RTO for removal of these details via Form 35.
• Fill up this form and submit at the RTO with the NOC given by the lender, letter of loan closure/lender’s loan statement, valid PUC certificate, copy of valid third-party liability insurance policy and so on.
• Pay the fee to cancel hypothecation and it depends on the state of registration of your vehicle. The fee may be checked on the website of the transport department.
• Pay this charge while submitting all your documents. They will be verified by the RTO and if everything is okay, then the hypothecation will stand canceled likewise.
• Upon this, the RTO will issue the RC afresh without these hypothecation details. When getting your new RC, you can apply for the Smart Card as well, by paying a small charge.

Insurance Policy Hypothecation Removal:

Once you have your new RC book, you may apply with your insurance provider.

Submit your lender’s NOC, policy copy and new RC book copy.

The details will be verified by the insurer before the details are removed from the policy document.

Checking removal status of hypothecation

You may scrutinize the vehicle status online in this regard. You can go to the Parivahan site which is https://vahan.parivahan.gov.in/vahanservice/vahan/ui/appl_status/form_Know_Appl_Status.xhtml. Key in your application number and the captcha code for verification before hitting Submit. The application status will be displayed instantly after this process is complete.

Why hypothecation removal is necessary

Hypothecation makes the vehicle collateral for the lender in case the policy holder defaults on the loan. The lender will be the actual owner in the repayment  period. This will give the entity the sale rights of the car for realizing the outstanding amount in case of any defaults. Hence, once the loan is repaid, make sure that you get the hypothecation details removed in order to become the complete legal owner of the vehicle and gain the right to sell it whenever you desire.

In this context, selling a used car means that you should always pay off the loan and then put it up for sale online/offline. You should also check hypothecation status of the car if you are buying any used model. You can do this via the Government’s Parivahan site. If the car is stolen at the time of loan repayment, when the lender is the legal owner of the same, the insurance claim will be paid to the entity and not to you.

If you have renewed your policy and forgot to get the hypothecation information removed, then you can submit your written application to the insurance provider with all documents. The details will be verified by the company before this information is removed. These are some of the things that you should remember about car hypothecation, what it is all about and how to remove these details upon loan repayment.

 

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