Hypothecation removal after car loan termination: A complete guide

In the realm of vehicle ownership and financing, the process of hypothecation removal from the Registration Certificate (RC) holds significant importance. Removing hypothecation from the RC signifies the completion of loan repayment and grants the owner complete ownership rights. In this article, we will explore the intricacies of hypothecation removal in RC, its benefits, and the step-by-step process involved.

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: Loan Repayment

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: Document Verification

Once the loan is cleared, the owner needs to 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 for the hypothecation termination process. 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: Submit the Application for Hypothecation Removal

You will need the following documents to complete and submit the application for hypothecation removal at RTO.

• Original registration certificate

• RTO copy of NOC

• Copy of your Driving Licence

• Copy of the PUC certificate

• Copy of car insurance policy

• Self-attested copies of Form 35

Step 5: 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 6: 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 7: 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.

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.

Frequently Asked Questions

Here are some of the most common questions and their answers related to car hypothecation removal after loan termination.

How to check my HP cancellation status online?

You can visit the Parivahan portal to check your car’s HP status online. Under the Vahan tab, select the “Online Services” option. Then, select “Know your RC Status,” a page will open asking you to enter your vehicle’s registration number. After you fill in the details, you can view your vehicle’s HP status.

How to check whether my car loan exists or not?

You can contact the bank/financial institution to check the status of your car loan. Using your login credentials, you can also check it online through the bank’s website/app. You will be able to view all the information, such as loan tenure, pending loan amount, EMI information, etc.

Can I sell a car without removing hypothecation?

To sell a car, you will need to transfer the ownership of the vehicle to the buyer. For that to happen, removing the hypothecation is a must. You need to get the NOC from the financier stating the closure of the loan; only then will you be able to transfer the ownership of the hypothecated vehicle.

Is it compulsory to remove hypothecation from RC?

It is important to remove the hypothecation after the loan repayment. It is a mandatory process to transfer the vehicle ownership to your name.

How much is the fee for hypothecation removal?

The cancellation of hypothecation or CHPA fee is Rs 100.

Where can I get the NOC after car loan repayment?

You can get the NOC from the lending bank/financial institution.

Can I remove HP from my RC if I still need to fully repay the loan?

No, HP can only be removed from the RC once the loan is completely repaid and all outstanding dues are cleared.

How long does the HP removal process take?

The duration of the process may vary depending on the workload at the RTO and the efficiency of their operations. On average, it takes approximately 15-30 days to complete the process.

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Disclaimer: The above content is for informational purposes only and is sourced from different online platforms. It is recommended to refer to the concerned/respective websites/authorities before making any decision.