Everything you need to know about car hypothecation addition

Owning a car is a big commitment, and is considered one of life’s big-ticket purchases. Only in rare cases, however, does a buyer make a full upfront payment for a high-value asset such as a car. To minimise the outflow of funds, most people in India purchase their car with the help of a bank loan, and this is where hypothecation comes in.

A vast majority of the car-buying population in India are either salaried individuals, self-employed, or running a business of their own. Naturally, the advantage of taking a loan and reducing the financial burden into manageable monthly instalments or EMIs is the preferred route. It’s at this time that hypothecation kicks in. Put simply, the bank provides a loan to a car buyer on the condition that the car remains in the bank’s name until the loan is paid off completely. In the event of a buyer defaulting on EMI payments, hypothecation gives the loan-issuing bank the authority to seize and take possession of the vehicle in question. This also helps prevent situations wherein a buyer tries to sell the car to another party before the loan is paid off.

Given that, how does one terminate hypothecation? Are there any fees involved? Is hypothecation terminated automatically or does it require manual intervention? In our guide to the ins-and-outs of hypothecation for your vehicle, we will cover everything you should know about the concept.

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What is hypothecation addition?

Hypothecation is a term that’s used to denote the fact that during your car’s loan tenure, the loan-issuing bank is technically the rightful owner of the vehicle in question. This may sound like you are not the owner of the vehicle you have purchased, but this is done primarily so that the bank that provides the loan can have collateral in the event of a payment default.

A loan is seen as a logical route for buying a big-ticket item such as a car for a majority of people in India. This is because a loan gives you not only the benefit of ownership at the end of payment of the loan, and the ability to use the car during, but it also reduces the outflow of funds into manageable monthly instalments or EMIs.

At the same time, one may fail to meet their EMI commitments regularly. There is also the possibility of a vehicle being purchased with the help of a loan, only with the intention of committing fraudulent activities with it. With this context, it is easy to understand why the loan-issuing bank needs to protect itself in the event of non-payment of its dues. Hypothecation helps in this regard. It allows the loan-issuing bank ownership privileges over the vehicle in question until such time that the loan is paid off completely. In the event of fraud or non-payment of dues then, the bank can begin the process of off-loading the vehicle in question to recoup its dues.

Points to note about hypothecation

The moment you purchase a car by taking out a loan, the bank will include hypothecation to the deal. Here, it is critical to keep a few points about hypothecation in mind:

1) The Registration Certificate (RC) that you receive from the Regional Transport Office (RTO) when getting a newly purchased car registered in your name, will carry a note stating that the car is hypothecated in favour of the bank which has given the car loan.

2) Your car insurance policy will also be in favour of the bank which has sanctioned your car loan.

3) Once your car loan is fully paid, you need to take a few important steps to remove the hypothecation.

4) While the car is in the bank’s name and hypothecation is active, you will not be able to sell the car.

5) You will only be able to completely own the car once the loan amount is paid in full and the hypothecation is removed.

Importance of removing hypothecation

Getting your bank loan dues cleared for your vehicle is undoubtedly a cause for celebration, but before you can fully enjoy the benefits of car ownership, it is crucial to get the hypothecation removed on time. The moment your last car loan EMI is paid in full and your loan is completely repaid, the first course of action should be to get the car’s ownership transferred to your name.

Failure to do so will reflect the bank or lender’s name instead of your own in all the car documents. While there is no law stating that you can not drive a vehicle in this condition, it will become bothersome for you in the event of an accident, or when insurance has to be claimed. Additionally, a car cannot be sold without removing the hypothecation.

Steps on how to add my vehicle’s hypothecation in RC online

The process of adding your vehicle’s hypothecation to your registration certificate (RC) online is simple and straightforward. First, you need to head to the official Parivahan Sewa website of the Ministry of Road Transport and Highways (MoRTH). Next, be sure to complete the following steps:

1) Enter your vehicle’s registration number.

2) Click on ‘Proceed’.

3) Select the ‘Basic Services’ option.

4) Enter your registration number and the last five digits of the chassis number. Then, click on "Validate Regn_no/Chasi_no".

5) Click on ‘Generate OTP’, enter the OTP, and hit submit.

6) Select ‘HYPOTHECATION Addition’.

7) Enter ‘Service Details’.

8) Update insurance details.

9) Review the fee panel and proceed.

10) Pay the fee.

11) Upload the relevant documents (as applicable).

12) Take an appointment (if required).

13) The receipt is then generated.

Once these steps are completed, the application will proceed to the RTO for further processing.

What are the forms required to add hypothecation?

There are a few documents required for the addition of hypothecation, namely:

1) Original registration certificate.

2) Two copies of duly filled Form 34 required for endorsement of hypothecation.

3) Copy of valid vehicle insurance that is attested.

4) Registered owner's attested copy of address proof.

5) Valid copy of pollution under control certificate.

6) Attested copy of PAN Card or Form 60 & Form 61 (depending on applicability).

How to remove hypothecation

The moment you have completed repayment of your bank loan for your vehicle, you should get your hypothecation removed. This is a manual process. The bank will not remove the hypothecation on your behalf once the loan has been repaid. The following steps need to be completed to remove hypothecation:

1) You must ensure that your loan is fully paid. Once all the dues are paid, the lender (or the bank) will issue a No Objection Certificate (NOC). If the lender does not issue the NOC by default, you can ask them for the same.

2) Next, you need to apply to the RTO for the cancellation of hypothecation. You will need the following documents:

a) NOC from the lender.

b) A filled out Form 35. It is the official application form for cancelling the hypothecation.

c) A valid motor insurance policy.

d) A Pollution Under Control Certificate (PUCC).

Once these documents are ready, you can formally apply to the RTO. You will also need to pay a fee for the procedure. Once it is complete, the RTO will process your request, and if things are in place, the hypothecation will be cancelled.

How to check vehicle hypothecation status

Once you have paid off your loan completely, the bank will still have ownership rights to your vehicle. It is important to get the hypothecation removed on your vehicle once the loan is paid off in full, especially if you plan on selling the vehicle thereafter.

To get the hypothecation removed, gather all the documents required (including the NOC from the bank), and submit them to the RTO. After the request submission, you have the provision to check the status of your request. You can do the same from the Parivahan web portal. Once the application is processed, you will receive a new RC book with the hypothecation removed. Removing your vehicle's hypothecation once your loan is fully paid is essential to avoid hiccups in selling the vehicle. It is also necessary for the validity of your insurance.

Conclusion

Regardless of how you pay for your vehicle (via loan or cash up front), owning a car is one of the biggest joys. If, however, you have secured a loan to finance the vehicle, it is important to understand the clauses that come attached with the loan. One of the most important clauses to note is that the car will be hypothecated to the loan-issuing bank for the duration of the loan.

In this case, it is vital that you keep up your monthly payments and get the loan repaid within the agreed-upon tenure. Hypothecation gives the loan-issuing bank the right to seize your vehicle in the event of fraudulent activity or non-payment of EMIs, so it is best to avoid hassles by being regular with your payments. It is also equally vital to remove the hypothecation once the loan is repaid in full. The process of transfer of ownership from the bank to the buyer is not automatic, and needs to be done as soon as the last EMI is completed. Failure to do so will result in the vehicle’s true ownership lying with the bank, which could lead to hassles down the line when you plan on selling the vehicle.

FAQs

Q. When do I need to add hypothecation to my vehicle’s RC?

When you apply for a loan to pay for a vehicle purchase, the bank automatically adds hypothecation to your vehicle’s registration certificate.

Q. How to check if your car’s RC has a hypothecation clause?

Your registration certificate will clearly state if the vehicle in question is hypothecated.

Q. How long does the hypothecation removal process take?

Once you have submitted all the required documents, it is down to the RTO’s efficiency to determine how quickly hypothecation will be removed.

Q. What are the fees for hypothecation cancellation?

The hypothecation fees vary from state to state, but they are typically a nominal amount. Check with your local RTO for further details on hypothecation cancellation fees.

Q. What happens if I don’t remove hypothecation from my vehicle’s RC?

If hypothecation is not removed, the car will still be in the bank’s name, and you will not be able to sell the car if required.