What is Hypothecation?
Hypothecation is a term used when a vehicle is purchased with the help of a loan from a financial institution such as a bank. The lending institution holds the right to the vehicle's ownership until the loan is fully repaid. This is indicated in the vehicle's Registration Certificate (RC) through an endorsement of HP.
Removing HP from your RC is a crucial step once you have repaid the loan in full. It establishes your complete ownership of the vehicle and allows you to freely transfer or sell it without any additional documentation.
What is Hypothecation Removal?
Hypothecation removal means removing the hypothecation from your vehicle's RC book or transferring the vehicle ownership to your name from that of the creditor/bank. In other words, the process of transferring the vehicle's ownership from the finance company to the owner is known as car hypothecation removal or RTO HP (hypothecation) cancellation.
Here is a detailed guide to help you go about the cancellation of the hypothecation in your vehicle's RC.
Car Hypothecation Termination Process
Car hypothecation removal is a legal process that terminates the lending institution's/bank's control over the vehicle. The process transfers the ownership of the vehicle from the lender to the owner's name. Therefore, it's extremely crucial to remove the hypothecation from the RC after the closure of the car loan. You need to visit your local RTO office for HP termination. Upon completing the HP removal procedure, the RTO will issue a new RC book stating your vehicle ownership in your name.
Unlike a house loan, where the process only necessitates intimating the local bank to close the loan, the process of closing a car loan is a bit different. Besides the lending institution, you also need to submit an application at the Regional Transport Office (RTO).
Procedure to Remove Hypothecation from RC After Car Loan Closure
Car hypothecation termination is a straightforward process, provided you have all the necessary documents. Hence, you don’t need to rely on any middlemen to get the job done.
Follow the steps mentioned below to remove HP from the vehicle registration certificate after the termination of the car loan.
Step 1: Repay The Loan
The first step is to ensure that the loan amount, along with any outstanding interest and charges, is fully repaid to the lender. It is crucial for initiating the hypothecation removal process.
Step 1: Repay The Loan
The first step is to ensure that the loan amount, along with any outstanding interest and charges, is fully repaid to the lender. It is crucial for initiating the hypothecation removal process.
Step 2: Collect The Documents
Once the loan is cleared, the owner must gather the necessary documents, such as the loan closure letter, NOC from the lender, original RC, and valid identification proofs.
Step 3: Visit the RTO with Valid Documents
Once you have received the documents from the bank, you can visit the RTO to apply for the hypothecation termination. Make sure to collect all the documents before visiting the RTO.
Here are the essential documents required for car hypothecation removal.
Original copy of the Registration Certificate
Original bank NOC
Original Form 35 and two copies of it signed by the registered owner and the bank.
Copy of attested PAN Card or Form 60, and Form 61
Copy of attested car insurance certificate
Copy of Pollution Under Control (PUC) certificate
Copy of your attested address proof. (You will require Form 33 if your current residential address is other than the one in RC.)
Apart from these documents, you must submit a copy of the No Dues Certificate from your bank to the insurance company. It will ensure the HP termination from the insurer’s record. It would be better to check all the documents twice after you receive a written confirmation from the involved parties to ensure that all papers are in accordance with the norms.
Step 4: Payment of Fees
Pay the prescribed fees for hypothecation removal at the RTO. The fee structure may vary across different states or regions, so it is advisable to inquire about the exact amount beforehand.
Step 5: Verification Process
The RTO officials will thoroughly verify the submitted documents and cross-check the details. This process ensures the authenticity of the information provided.
Step 6: Issuance of Updated RC
After successful verification, the RTO will issue an updated RC indicating the removal of hypothecation. The new RC will be handed over to the owner, completing the process.
Online Process for RTO Hypothecation Removal
Here is a step-by-step list of the RTO hypothecation removal process online:
Compile the necessary paperwork.
Next, you should view Parivahan Seva's website. The Ministry of Road Transport and Highways, Government of India, also has an official website.
If you already have an account on the Parivahan Seva website, you can sign in with your username and password. If you don't, you must register for an account.
After logging in, you must choose the "Hypothecation Removal" option. This service allows you to remove the hypothecation from your RC online.
At this point, the necessary document scans must be uploaded.
Cover the cost. Removing hypothecation from RC online requires a small charge. States charge different fees. The fee can be paid using a debit card, credit card, or net banking.
After uploading the necessary files and paying the requisite amount, you must go to your neighbourhood RTO to finish the hypothecation termination procedure and submit the application. The application will be processed in a few days.
The RTO will issue a fresh RC smart card sans the hypothecation details after processing the application. The post will deliver the new RC smart card to your address.
Here are a few more points to remember:
To apply online for hypothecation removal, you must have a working email address and mobile number.
Each document must be correctly scanned.
You may need to exercise a little patience as the procedure of removing hypothecation from RC online may take several days.
Documents Required To Hypothecation Removal Process
Now that you know how to remove hypothecation from RC, let’s recap on what documents you need in this process:
Fill out Form 35: Application for Registration Certificate (RC)
Letter of allocation for the vehicle
A current insurance certificate
Proof of address;
Pollution Under Control (PUC) certificate;
R.C. Book;
Attested copy of PAN card or
Forms 60 and 61 (if applicable);
Financer's No Objection Certificate;
Pencil print of the chassis and engine;
Owner's signature
Be aware that while some states might call for the documents indicated with an asterisk (*), others may not. To prevent last-minute problems, you must obtain confirmation from your neighbourhood RTO office.
Upon settlement of the auto loan, the lender will furnish all required documentation, including the NOC. It's crucial to remember that the NOC is only good for three months after it is issued. Consequently, it is best to start the application procedure with the RTO prior to the expiration of the NOC.
Processing Time for Hypothecation Termination
In India, the procedural period for hypothecation removal or termination usually takes two to three weeks. Keep in mind that this timeline could change slightly based on the RTO office in question, the volume of applications received, and how well the processing processes work. The processing time may be affected by a few different things. Now let's examine them:
Proper Documentation
To prevent delays, confirm that all necessary documents have been supplied in the appropriate format and with the requisite copies.
Unwanted delays may result from inadequate documentation.
RTO Workload
Efficiency of Processing
Benefits of HP Termination or Removal from RC
Complete Ownership: The removal of hypothecation from the RC signifies that the loan has been repaid in full, granting the vehicle owner complete ownership rights. It empowers the owner to freely sell or transfer the vehicle without any encumbrances.
Resale Value: A vehicle without hypothecation on its RC holds a higher resale value in the market. Prospective buyers prefer vehicles with clear ownership, as it ensures a hassle-free transfer process.
Reduced Documentation: With hypothecation removal, owners are relieved from the burden of providing additional documentation and obtaining NOC (No Objection Certificate) from the lender during future transactions.
RTO Hypothecation Cancellation/Termination Online
The online method to submit the car hypothecation removal application is undoubtedly more convenient than the traditional offline method. Here are the steps to apply for an online RC removal application.
Step 1: Visit the Parivahan website.
Step 2: Select the "Vehicle-Related Services" option under the "Online Services" tab.
Step 3: Select the State of residence and the details of your local RTO.
Step 4: You will reach the car HP cancellation form submission gateway after entering your vehicle's registration and chassis numbers.
Note: You will be required to visit your local RTO to complete the HP termination process.
Common Mistakes to Avoid
When navigating the hypothecation removal process, it's crucial to be aware of common pitfalls that can lead to delays or complications. Here are some mistakes to avoid:
Submitting Incomplete Documents: Ensure that all required documents are properly filled out, signed, and submitted. Incomplete or missing documents can significantly slow down the process.
Not Following Up with the RTO: After submitting your application, regularly follow up with the RTO to track the progress of your hypothecation removal. Failing to do so may result in unnecessary delays.
Delaying the Process: Once you have received the NOC from the lender, initiate the hypothecation removal process promptly. The NOC is usually valid for a limited period, and delaying the process may require you to obtain a fresh NOC.
Consequences of Not Removing Hypothecation
Failing to remove hypothecation from the RC after loan repayment can lead to various legal and financial consequences:
Legal Complications: Selling or transferring ownership without removing the hypothecation can lead to legal disputes and challenges for the new owner.
Difficulty in Selling the Vehicle: Prospective buyers may hesitate to purchase a vehicle with hypothecation still on the RC, as it implies an outstanding loan.
Insurance Claims: Hypothecation on the RC may complicate insurance claims and settlements in case of an accident or theft.
Hypothecation Removal for Different Vehicle Types
The hypothecation removal process is generally similar across different vehicle types, such as cars, two-wheelers, and commercial vehicles. However, there may be slight variations in the required documents or fees based on the specific vehicle category. It's advisable to check with your local RTO for any vehicle-specific requirements.
Role of Insurance in Hypothecation Removal
When you remove hypothecation from the RC, it's essential to update your vehicle insurance policy as well. Inform your insurance provider about the removal of hypothecation and provide them with the updated RC. This ensures that the insurance policy reflects your sole vehicle ownership and avoids any confusion during claims or renewals.
Hypothecation Removal in Case of Loan Foreclosure
If you choose to foreclose your car loan before the original tenure, the hypothecation removal process remains the same. After settling the outstanding loan amount, obtain the NOC and other necessary documents from the lender. Then, follow the standard procedure to remove hypothecation from the RC at the RTO.
Assistance from Third-Party Agencies
Several third-party agencies offer assistance with hypothecation removal. While these services can be convenient, exercise caution when choosing an agency. Consider factors such as their reputation, experience, and customer reviews. Remember that the hypothecation removal process can be completed by yourself, and engaging a third-party agency is optional.
Ending Note
When hypothecation is removed from your car's Registration Certificate (RC), you become the sole owner of the vehicle, which is a big accomplishment.
It allows you additional independence and a clean title for your car and the whole ownership experience. Along with less paperwork, cheaper insurance, and increased resale value, this newfound flexibility comes with ownership as well.
There are a plethora of advantages to hypothecation removal. By following the easy methods provided in this blog, you can handle the process and take advantage of all its benefits.
So, go ahead and do what's required to release your car from these restrictions and open up a whole new universe. Own a hypothecation-free car and feel the happiness it brings!
Frequently Asked Questions
Here are some of the most common questions and their answers related to car hypothecation removal after loan termination.
