Hypothecation is a term that you will frequently come across when handling your car loans or financing. When you take a loan from a bank to buy a car, the bank adds this hypothecation clause to your car’s registration certificate (RC). Simply put, hypothecation is pledging your car as a guarantee for securing your car loan. The clause holds your car as the security collateral for your loan. This means that in case of non-repayment of the loan, the car can be taken away or repossessed by the bank to recover its money. Having a hypothecation clause in your RC is a legal reminder that the bank has a claim to your vehicle, till the loan is completely paid off. Hence, once you have paid off your entire loan, the first thing you should do is get the hypothecation removed. This will make you the 100 percent legal owner of your car.
Need for vehicle hypothecation
When you hypothecate your vehicle, it acts as a collateral against your loan, and is technically owned by the bank till you repay the full amount. Hypothecation, therefore, provides a safety net to lenders from borrowers who do not pay back.
What is hypothecation termination?
Hypothecation termination, or hypothecation removal, is the process of removing the bank’s (or any lender) name from the car’s RC, once the car loan has been entirely paid off by the borrower. This process officially cancels the hypothecation clause and transfers the full legal ownership of the vehicle to the buyer. Hypothecation termination is an important step because of the following reasons:
- Full legal ownership – Removal of the hypothecation clause from the RC ensures that you have complete ownership of your car, and the bank or lender no longer has a claim to it. You will have full freedom to even sell or transfer the vehicle to someone else, which would not be possible with the lender’s name in the RC.
- Insurance Claims – Insurance claims may be delayed or, in some cases, even denied for a vehicle with an active hypothecation. Complete ownership makes claims much less complicated.
- Peace of mind – Once the hypothecation is removed, you will have the satisfaction of being the sole legal owner of your car. It will also eliminate any potential scope for ownership disputes or disagreements.
As evident from above, getting the hypothecation removed is a priority once you have repaid the car loan to get full legal ownership of the vehicle. So how do you get it removed from the RC? There are two ways to go about it – online and offline. We provide a full breakdown of both the processes, the necessary documents and fees involved, to help you reclaim complete ownership of your car without any hassle.
Step-by-step process for hypothecation termination after loan repayment
After paying off your loan, you can initiate the hypothecation termination process either online or offline by visiting the RTO.
Hypothecation termination: Online process
Step 1: Visit the Parivahan Sewa website. Log in using your username and password. If you do not have an existing account, you will have to create a new one.
Step 2: Under the ‘Online Services’ tab, select ‘Vehicle Related Services’ and select your state.
Step 3: On the next page, select your RTO and click ‘Proceed’.
Step 4: Click on ‘Hypothecation Termination’ from among the online services shown, enter your vehicle details and submit for verification.
Step 5: Once verified, upload the scanned copies of all the required documents, such as loan closure letter, no-objection certificate (NOC) from the bank and any other required proofs.
Step 6: Next, make the payment. You have to pay a nominal fee for hypothecation termination. The fee can be paid through debit card, credit card, UPI or netbanking.
Step 7: Once the fee is paid and the documents are all uploaded correctly, visit your local RTO to submit your application for processing.
Usually, the hypothecation termination application takes a few days to process, so you may have to be a little patient at this stage. Once it is processed, the RTO issues a new RC card sans the hypothecation clause, which is sent to your address by post. The new RC card gives you full legal ownership of your car.
A few additional things to keep in mind while opting for the online process are given below:
- Ensure that you have a valid and active email address and mobile number to provide in your application
- Ensure that you scan all the documents carefully, without any smudges or missing or illegible sections
Hypothecation termination: Offline process
Step1: Gather all the required documents from your lending bank such as loan closure letter, NOC, along with the Form 35 and any other required identification proofs. A complete list of documents required is given in the section ahead.
Step 2: Visit your local RTO with all the required documents, fill in the application form for hypothecation termination and submit them. You can also download the form beforehand from the website and fill it at home before heading to the RTO.
Step 3: Pay the fees for removal of hypothecation. This is a nominal fee that you have to pay for the termination service. The fee can be paid through debit card, credit card, UPI or netbanking.
Step 4: The next step is verification. The RTO will meticulously cross-check and verify all the submitted documents and check their authenticity.
Once the documents are verified and the application is processed, the RTO will issue a new RC card and dispatch it to your home address, usually within a week. The new RC card will no longer have the hypothecation clause, entitling you to complete legal ownership of the car.
Do keep in mind that unless you get the hypothecation removed from your RC through any of the two processes detailed above, you will not be able to sell, or transfer the car.
Hypothecation termination forms
There are a lot of RTO forms related to vehicles, such as forms 28, 29, 30 and 35. Form 35 is the main application form for removal of hypothecation from your RC. Both the lender and buyer are required to fill the form. Essentially, it is a notice of termination of the hypothecation between the lender and the buyer. You can get this form at your local RTO or download it from the website.
Documents required for vehicle hypothecation termination
The following is a complete list of documents you will need for hypothecation termination:
- Form 35 application, filled by both lender and borrower
- Original Registration Certificate (RC)
- Original copy of No Objection Certificate (NOC) from lender*
- Allotment letter of the vehicle
- Valid insurance policy
- Proof of address*
- Pollution Under Control (PUC) certificate*
- RC Book*
- Attested copy of PAN card*
- Chassis & Engine Pencil Print*
- Signature Identification of owner*
The items marked (*) are not always compulsory but may be needed in some states.
Always get a confirmation regarding all document-related information from your RTO to ensure a smooth and fast process.
The NOC is issued by the lender to the borrower once the loan has been paid back. It has a validity of three months, so it is advisable to initiate the hypothecation removal process at the earliest after you receive the NOC from the bank.
Advantages of hypothecation removal from RC
While we briefly touched upon the importance of hypothecation removal in the introduction, a more detailed overview of benefits is given below:
- 100% ownership and complete freedom – You have complete claim over your vehicle once the hypothecation clause is removed. You can sell, transfer, export or modify your ride as you see fit without worrying about any restrictions from the lender.
- Clean title – Hypothecation termination ensures that the car has a clean owner title. A clean title makes selling or transferring the ownership of the vehicle easier.
- Insurance benefits - With no hypothecation clause in the RC, you are free to choose a lower priced insurance as per your needs. Moreover, with a clear title, insurance claims are more likely to be approved and processed faster with less complications.
- Resale value – Full ownership not only gives you freedom and flexibility but also improves your car’s value and marketability. The resale value is higher for a car that has a clean title. You will also be able to negotiate and get a better price without the hypothecation tag.
- Hassle-free documentation – With the removal of hypothecation, a big chunk of documentation and paperwork related to your vehicle is reduced as the lender’s part of the documents is no longer needed.
Hypothecation termination fee
You must pay the hypothecation termination fee when you submit the application form - Form 35. The current fees charged for removal of hypothecation is Rs. 100.
How to check hypothecation cancellation status online
You can monitor the status of your hypothecation termination online. Here is a step-by-step guide:
Step 1: Visit the Parivahan Sewa website and log in with your credentials
Step 2: Enter the registration details of your vehicle or your application number and click on "Know Your Application Status."
Step 3: Your application details and status will be displayed. If the status is shown as ‘In Process’ wait for a few more days for it to complete. If status is ‘Not Processed’ there may be an issue with your documentation. It is advisable to contact and visit your RTO for further steps. However, due to the streamlined process, chances of getting this status is very low. If your status is shown as ‘Processed’ it means that the removal of hypothecation is complete and you will receive your new RC card at your address shortly.
Conclusion
Terminating the hypothecation clause from your RC is extremely important as it bestows you with full ownership of the vehicle. You can choose to do it online through the website or offline by visiting your local RTO. Ensure you have all the correct documents and forms for a seamless hypothecation termination process.
FAQ
Q. What is the hypothecation charge for vehicle RC?
Hypothecation charge is the fee you have to pay for removal of hypothecation from your RC. Currently the hypothecation removal fee is Rs. 100. You have to pay this charge after submitting your documents.
Q. Is it necessary to get hypothecation removed from my RC?
Yes, it is important that you terminate the hypothecation clause from your RC as this would give you full legal ownership of the vehicle and complete freedom to do what you want with it. It gives you the clean title of the car with no dependency on the lender. It also gives you insurance benefits and enhances the car’s resale value.
Q. What is the best way to check if a car is still being financed?
The best way to see the financial details of a car is to check the RC. A hypothecation clause in the RC indicates that the car is under a loan. You can get additional information on this from the bank or lender. In case you are looking to sell a financed car, these tips may help you understand the process.
Q. Can I sell my vehicle without cancelling the hypothecation?
It is not a good practice to sell a car that is under a loan and has a hypothecation in the RC. Moreover, it may be a deal-breaker with prospective buyers, who mostly prefer to purchase vehicles with a clean title.
Q. Is hypothecation a loan?
Hypothecation is not a loan. It is a legal reminder on the RC that confirms the existence of the loan against the vehicle as collateral.
Q. How to process NOC from RTO?
For hypothecation removal, you have to submit your NOC issued by the bank or lender along with the other documents, like Form 35, to the local RTO. The RTO then processes these documents and removes the hypothecation from your RC.
Q. How do I get my RC card after hypothecation removal?
After submitting all the required documents and paying the fee, the RTO cross-checks and verifies all the information. On successful processing, you will be issued a new RC card without the hypothecation, which is sent to your registered address.
Q. Can I download my NOC online?
That depends on the services provided by your bank or lending institution and your RTO. Today, all leading banks have online apps and websites and the government has also made it very easy to access your RTO website online. Using these, you can easily download your NOC by entering your car details. Check with your bank for further information on this.
Q. I have the NOC and Form 35. Instead of removing hypothecation, can I transfer my RC?
You can transfer your RC using the Form 35 and NOC but it is important to first remove the hypothecation. Presence of the hypothecation clause can decrease the market value of your car as well as cause complications in documentation.
