A car is no longer associated as luxury but more of a necessity. Since easy finance is available to buy cars, it is found in almost every alternate household. Earlier, people saved up for many years to get the most basic car they could buy, but these days, loan facilities offered by banks and financial institutions make it easy for people to get hands on one. Not only that, the instalments are affordable thereby more and more people can afford one.
When you buy a vehicle with such finance options, you will come across the term hypothecation. A car when bought on loan becomes the collateral for the lender. This vehicle is then security for the lender till the loan is repaid in full. Read further to know about hypothecation and why it is essential to terminate in your car insurance policy.
What is hypothecation?
When you buy a car, be it new or old, with the help of a finance scheme from a lender, the vehicle is registered in your name and its registration certificate contains the name of the lender under the ‘hypothecated to’ section. Although you are the legal owner, the Regional Transport Office or RTO makes a record wherein the financial institution that has financed the purchase is mentioned. This is called as hypothecation and remains valid till the time the loan is repaid completely.
Is it essential to remove the hypothecation once the loan is repaid?
A short answer to the above question is yes. It is essential for you to remove any hypothecation from your vehicle’s registration document once you have paid the entire amount of loan. Once done, the financial institution issues a no-objection (NOC) certificate mentioning no further amount is due from you towards the loan. The same is then required to be submitted to RTO for further processing. Removing hypothecation on your car is essential since any instance of total loss or damage to the vehicle, the claim amount by the insurance company will be issued in favour of the lender. To avoid such unnecessary hassles, it is best to terminate the hypothecation of your vehicle in your registration certificate as well car insurance policy once all the dues are cleared.
What is the process of removing the hypothecation?
#1 The cancellation process begins only after the balance due to your financial institution is settled after which it issues a NOC certificate.
#2 Once you have the NOC certificate, you need to furnish this document along with your vehicle’s essential documents like registration certificate, PUC certificate and car insurance policy accompanied by necessary forms to the RTO where your vehicle is registered.
#3 Once these documents are submitted, the RTO processes your request of removal of hypothecation after prescribed fees are paid.
#4 After the hypothecation is deleted, a fresh registration certificate is issued which can be submitted to your insurer for removing such hypothecation from your car insurance policy. This can be done at car insurance renewal too, but it is best advisable to do it immediately.
Therefore, it is essential to remove hypothecation from the general insurance cover for your car. Keep in mind the above steps that can help you get the entire process done in a seamless manner. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.