Hypothecation - What is Hypothecation

Hypothecation is the process of pledging your vehicle’s ownership to the lender until the vehicle loan is fully paid

There are two ways to finance a new vehicle. You can either pay the total amount out of your pocket or take a bike or car loan. Many people choose the latter as they may not have enough liquidity to buy the vehicle with cash or may want to avoid a substantial one-time outflow that creates a dent in their savings.

A loan is, therefore, a common way out. When you take a vehicle loan, you borrow money from the lender and use it to buy the vehicle. However, even though the vehicle stays with you, it can be taken by the lender anytime. It is the collateral for your vehicle loan, which means until you pay back your loans, the vehicle's ownership remains with the lender. But how does this process work, and how can you claim the ownership once the loan is completely paid? Let's learn.

Hypothecation meaning

Hypothecation is the process wherein you pledge the ownership of your vehicle to the lender. Once you take a vehicle loan, the hypothecation request is submitted to the regional transport officer with the loan details. Even though the vehicle's ownership remains with the lender, your name and address are mentioned in the vehicle's RC book. It means you will be legally liable for everything related to the vehicle.

How to add hypothecation to your RC book?

Hypothecation is added to the RC when you buy your vehicle using a loan. You will need to submit your identity and address proofs and the loan details. The process becomes easier when you avail of the loan from a reputed lender, like IDFC FIRST Bank. IDFC FIRST Bank's digital approach makes the process swift and hassle-free, allowing you to avail of a loan online and offline.

If you wish to apply for a FASTag online, do it with IDFC FIRST Bank’s FASTag, FIRSTForward. Click here to know more.  

How to add hypothecation to an insurance policy?

Your insurance policy will, by default, collect information from your vehicle's RC book and mark hypothecation to your insurance policy. When you try to renew your policy, you will be asked for the same details and a copy of the RC book.

How to remove hypothecation?

Once you have completely paid your loan off, you should get the hypothecation removed. You cannot sell your vehicle without removing it. Follow the below steps to remove hypothecation:

1) NOC from the lender

You must ensure that your loan is fully paid. Once all the dues are paid, the lender 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) Application to RTO

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

• NOC from the lender.
• A filled out Form 35. It is the official application form for canceling the hypothecation.
• A valid insurance policy.
• A Pollution Under Control Certificate (PUCC).

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

3) Check hypothecation status

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, a national service 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.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.