What is car loan hypothecation?

Learn all about the car loan hypothecation process, what it means, and how to remove it from your registration certificate of the car.
What is car loan hypothecation?
4 min
22-February-2024

When it comes to purchasing a car, many people choose to opt for a car loan to finance their purchase. However, the process of availing of a car loan comes with certain legal implications, such as car loan hypothecation. Let us look at everything that you need to know about car loan hypothecation.

Understanding car loan hypothecation

Car loan hypothecation is a legal term that refers to the practice of pledging your car as collateral to the lender when you apply for a car loan. This means that the bank or financial institution keeps the ownership of your car until you have repaid the entire loan amount. During the loan tenure, your car is legally owned by the lender, and the hypothecation is marked in your car's registration certificate (RC).

What is the car loan hypothecation process?

The process of car loan hypothecation involves the following steps:

  1. Loan application:
    The first step is to apply for a car loan by submitting the necessary documents to the bank or financial institution.
  2. Loan sanctions:
    After the lender has approved your loan application, they will sanction the loan amount and initiate the hypothecation process. The lender will transfer the loan amount to your bank account, which you can use to purchase the car.
  3. Registration:
    After loan approval, the hypothecation is registered with the regional transport office (RTO). The lender will endorse the hypothecation on the registration certificate (RC) of the car.
  4. Loan repayment:
    The entire loan amount must be repaid within the designated loan tenure. Once you have made the final payment, you can request a No Objection Certificate (NOC) from the lender.

How to remove the hypothecation from a car?

Once the entire loan amount has been repaid, you can obtain a NOC from the lender, which declares that you have repaid the loan amount in full. You then need to submit this NOC to the RTO along with other necessary documents, such as the original RC, insurance documents, and clearance certificate. The RTO will process your request and remove the hypothecation endorsement from the RC, marking you as the sole owner of the car.

In conclusion, car loan hypothecation is a legal term that refers to the practice of pledging your car as collateral to the lender when you avail of a car loan. The process involves marking hypothecation in your car's RC, which indicates that during the loan tenure, your car is legally owned by the lender. It is crucial to repay the entire loan amount within the specified loan tenure and obtain the NOC from the lender to remove the hypothecation endorsement from the RC. This is an essential step in the process of buying a car. It helps ensure that you officially become the owner of the vehicle after you have repaid the loan.

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Frequently asked questions

Is it necessary to remove hypothecation?

Removing hypothecation, or the lender's lien on a vehicle due to an existing loan, is necessary to establish clear ownership of the vehicle. Once the loan is fully repaid, the lender should provide a no objection certificate (NOC), which allows you to remove hypothecation from the vehicle's registration certificate (RC). This process ensures that you have complete ownership rights and can freely sell or transfer the vehicle without any encumbrances.

Can I cancel my hypothecation online?

You can initiate the process to cancel hypothecation (remove the lender's lien on your vehicle) online through the Ministry of Road Transport and Highways portal or the respective State Transport Department's website. You typically need to provide documents such as the loan closure letter, no objection certificate (NOC) from the lender, valid ID proof, and the vehicle's registration certificate (RC). Follow the online instructions to initiate the process.

What is the process of car hypothecation fee?

In India, the process of car hypothecation involves paying a fee for registering or removing hypothecation from a vehicle's registration certificate (RC). The fee varies by state and is typically payable at the time of submitting the application along with necessary documents such as the loan closure letter, no objection certificate (NOC) from the lender, and identity proof.

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