Hypothecation removal after car loan termination: A complete guide

Team Ackodrive6, Jun, 2022

Car loans with easy EMI (Equated Monthly Installment) options at affordable interest rates have truly simplified the whole process of purchasing a new car. However, as long as the loan continues, the vehicle remains legally owned by the creditor/financial institution. So, as soon as you repay the loan, make sure that you remove the hypothecation from the RC (Registration Certificate). This article throws light on how to remove hypothecation from the Registration Certificate after car loan termination.

Hypothecation Removal After Car Loan Termination

What is hypothecation removal?

In simple words, hypothecation removal means to get your vehicle transferred in your name from that of the finance company. It also means removing the hypothecation from your vehicle's RC book. 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 of your vehicle.

Car hypothecation termination process

Car hypothecation removal is a legal application that terminates the lending institution's control over the vehicle. It is responsible for transferring the ownership of the vehicle from the lender to the name of the owner. Therefore, it's extremely crucial to remove the hypothecation from the RC. 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 in your name stating your complete vehicle ownership.

Unlike in a house loan, where the process only necessitates intimating the local bank to close the loan, the process of closing the car loan is a bit different. Besides the lending institution, you also need to register an application at the Regional Transport Office (RTO).

Also, read: How to Get the Best EMI and Finance Scheme for Car Loan?

Procedure to remove hypothecation from RC after car loan closure

Although vehicle owners mostly rely on mediators to complete all their RTO-related work, most of these processes are simple. Therefore, you don’t need to rely on anyone to get the job done.

Follow this detailed guide to remove HP from the vehicle registration certificate after car loan termination.

Step 1: Collect the required documents from the lender/bank

To cancel the hypothecation of the vehicle after you repay the loan, you need to collect some vital documents from the lender/bank.

After the vehicle loan closure, the bank/financial institution will provide you with two major documents. Below are more details about the documents.

  • NOC (No Objection Certificate) The bank issues a NOC agreement, stating the lender’s acceptance of hypothecation termination. The bank may provide you with two to three copies of the NOC each for the RTO and the car owner. Some banks also provide additional copies of the NOC for insurance companies’ record keeping. The validity period of the NOC is three months from its date of issue. Hence, you need to submit an application for hypothecation termination from the RC at the Regional Transport Office (RTO) before the expiration of NOC.

  • Form 35: The bank will also issue two copies of Form 35, mentioning the removal of hypothecation between you and the bank.

It's important to note that banks may take around 2 to 3 weeks to deliver the NOC after the clearance of the entire loan amount. On payment of the loan amount before maturity, you may have to pay a prepayment penalty. Hence, it is essential to determine the pre-closure charges on the car loan. The fee depends on the outstanding amount that you need to repay. You will have to visit the RTO on receiving the documents from the lender/bank for car hypothecation removal from your RC.

Step 2: Visit the RTO with valid documents

Once you have received the documents from the bank, it's time to head over to the RTO for the hypothecation termination process. Make sure to collect all the documents before visiting the RTO.

Following are the essential documents required for the car hypothecation removal.

  • 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

  • Original bank NOC

  • Original RC

  • 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 visiting the RTO, you will have to submit a copy of the No Dues Certificate received from your bank to the insurance company. It will ensure HP termination from their book. 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 3: Submit the application for hypothecation removal

While you are at the RTO, you will need the following documents to complete and submit the application for hypothecation removal.

  • RTO copy of NOC

  • Your vehicle's original registration certificate

  • Copy of your PUC

  • Copy of your driving licence

  • Copy of car insurance policy

  • Self-attested copies of Form 35

You need to verify these documents at the RTO through the verification officer. The RTO will update the vehicle-related information in their system. You must pay a minimal fee at the payment counter for the application. The RTO will assign a date for your next visit. All the attached documents are completely verified in the given time frame and are approved by the concerned officer.

Step 4: Fees and process to receive the new RC smart card

  • On your next visit to the RTO, the same officer who verified your documents will provide you with the “Acceptance Form” that has the details mentioned on the RC. 

  • If you need to make any corrections in the details, get it done right there, and the same will be reflected in the respective form.

  • Upon verification of all the documents, you must submit all the documents along with your acceptance form at another counter. 

  • On payment of the required fee for the new RC card, RTO will provide you with a receipt indicating the date of issue of the new RC card or the Smart Card RC. 

  • Visit the RTO to collect your new RC Smart Card on the provided date.

Also, read: The Significance of RTO for a Car Owner

Benefits and importance of HP termination or removal from RC

It is crucial to remove HP from your RC book after completely repaying the loan amount. Without HP termination, you won't be able to transfer the ownership of the vehicle to your name. Moreover, if you don't get the HP terminated, any car insurance claim amount will be sent to the bank instead of you.

RTO hypothecation cancellation/termination online

Using the online method to submit the car hypothecation removal application is undoubtedly more suitable. Below 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: Enter your state and the details of your RTO office.

Step 4: You will reach the car HP cancellation form submission gateway after entering your vehicle's registration and chassis numbers.

Note that you will be required to visit your local RTO to complete the HP termination process.

Frequently Asked Questions (FAQs)

Below are some common questions and their answers regarding car hypothecation removal.

How to check your HP cancellation status online?

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Visit the Parivahan portal online 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 that will ask you to enter your vehicle’s registration number. After you fill in the details, you will be able to view your vehicle’s HP status.

How to check whether your car loan exists or not?

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You can check whether the car loan exists or not by visiting the RTO website online. You need to select the “Vehicle Status” option and fill in your vehicle registration number to view all the information on the website.

Can I sell a car without removing hypothecation?

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You need to get the NOC from the financier stating the closure of the loan, as then only you will be able to transfer the ownership of the hypothecated vehicle.

Is it compulsory to remove hypothecation from RC?

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Yes, to transfer the ownership of the vehicle to your name, you need to eliminate the hypothecation from your RC after you repay the loan amount.

How much is the charge for hypothecation removal?

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The cancellation of hypothecation or CHPA fee is Rs 100.

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