Hypothecation in Car Insurance and How to Remove it?

Today, buying a cari is very much withini the reach of salariedi class and professionals. Easyi availability of loans andi higher disposable income arei two major factors thati have made cars affordable.i A buyer paying thei full showroom price ati the time of cari purchase is a rarity.i More often than not,i buyers make only ai small down payment andi the balance cost isi met through a banki loan. The concept ofi hypothecation status comes upi in case a loani is taken to purchasei the car.

Hypothecation – Whati Does it Mean?

To understandi what hypothecation is, youi need to grasp thei fact that it arisesi only if you havei taken a loan toi buy your car. Say,i you are buying ai car and to financei it you have approachedi the bank for ai car loan. The banki sanctions the loan fori purchasing the car. Thoughi you get its ownership,i the car would remaini a collateral to thei bank which has lenti you the money. Ini other words, hypothecation in cari insurance implies pledging thei car when applying fori a car loan. Whilei you would have itsi physical possession, the banki will continue to holdi hypothecation status on youri vehicle until the loani is paid in full.

Hypothecationi & Insurance

The Motor Vehiclesi Act of 1988 mandatesi buying a car insurancei policy for every cari that you purchase. Iti is compulsory to buyi at least a third-partyi liability insurance policy fori every car you own,i With respect to hypothecationi status in insurance policies,i when you apply fori an insurance policy fori the car that isi financed through a loan,i your policy document willi carry a note ofi it. This note willi imply that while thei car is registered underi your name in youri jurisdiction’s RTO, the hypothecationi in car insurance isi made in the bank’si favour.

Legal Compliance in Hypothecation

Thei registration certificate issued byi the Regional Transport Officei (RTO) of your jurisdictioni will contain information abouti the hypothecation status ofi your vehicle as well.i While registering your car,i which is hypothecated byi the bank, the followingi set of documents willi be required for submission:

• Formi 34, which would acti as an application formi for hypothecation
• Original registration certificate
• Existingi car insurance policy papers
• PUCi or pollution under controli certificate
• Your address proof, whichi can be your Aadhaari card, ration card, electricityi bill etc.
• An attested copyi of your PAN card
• Ai receipt of the feei paid for the endorsementi of the hypothecation statusi by the Regional Transporti Office or RTO

Removal ofi Hypothecation

It is only naturali that once this loani has been paid offi in full, the hypothecationi status in insurance willi cease to exist. Toi know how to removei hypothecation is extremely importanti because of:

• Ownership complexities
• Extra scrutinyi when applying for renewali of insurance policy
• Issues whilei trying to sell ofi the car
• Issues when claimingi insurance due to ai natural or man-made disasters

Processi of Hypothecation Removal

The followingi points will help youi know how to removei hypothecation

Step 1: The firsti and foremost requirement ini removal of the hypothecationi status is paying offi the loan. Only wheni your car is debt-free,i you can apply fori the removal of hypothecationi in car insurance.

Step 2:i To validate that youi have repaid your cari loan in full, youi must obtain a Noi Objection Certificate from youri bank. You must alsoi obtain Form 35 fromi your bank, which wouldi serve as a hypothecationi cancellation request form toi the RTO.

Step 3: Submiti the Form 35 andi NOC to your RTOi for initiating the processi of cancellation of hypothecationi on your vehicle.

Step 4:i You would be requiredi to pay a certaini stipulated fee for thisi cancellation process, that musti be submitted to thei RTO. This fee willi vary between states. Oncei you have paid thei fee, the RTO willi review your documents andi complete the cancellation process.

Ini Conclusion

You may think thati paying off your cari loan should be thei only thing on youri to-do list. But pleasei remember that after completingi the car instalments, youi need to also puti in a request fori cancelling the hypothecation statusi on your vehicle ori else it could leadi to complexities in casei of insurance claim, sellingi off the car etc.

Disclaimer:i For more details oni risk factors, terms &i conditions please read salesi brochure carefully before concludingi a sale. *The discounti amount will vary subjecti to vehicle specification andi place of registration