When you buy a car – either new or used, there are multiple ways of paying for it. You can either pay for the car’s full value straight away, or you can opt for a car loan from a bank or financial institution, where the total value is paid in monthly installments. When you avail of a bank loan, the car becomes collateral – while it is registered in your name, the bank holds ownership of the vehicle until the loan is paid off.

This process is called hypothecation, and if you’ve acquired your car with this process, it is included in your car’s Registration Certificate. In case you’re wondering if your vehicle will forever bear that status, it will not. Read on to see how you can remove your car’s hypothecation once the car loan is fully paid off and closed.

How to remove hypothecation from a vehicle?

To remove the hypothecation status of your vehicle, you need to follow these steps.

1. Pay off your car loan
2. Once your loan has been paid off, the bank will provide you with a NOC (No Objection Certificate
3. This NOC should be submitted to your RTO along with a copy of your RC (Registration Certificate) and other documents required.
4. Once the process is completed by your RTO, you will be issued a new RC.

How to remove hypothecation from motor insurance online?

Once hypothecation is removed from your vehicle, you will have to notify your insurance provider of the same.

You just need to submit the NOC to your motor insurance provider, and you will receive an updated policy document without the hypothecation mark.

Is it important to remove hypothecation?

Yes! Not removing your hypothecation can lead to many complications along the way. These are some of the problems you may face.

1. Ownership – You aren’t the owner of the car until it is made official by the RTO. Once you receive the NOC from the bank, you will have to alert your relevant RTO to get ownership of the vehicle.
2. Selling – If you don’t have hypothecation removed, selling your car can become very difficult. You won’t be able to proceed with the transfer of ownership until you pay off your load and hypothecation is removed.
3. Insurance renewal – When your vehicle undergoes hypothecation, and that status has not been removed, your motor insurance renewal is subject to extra scrutiny.
4. Total loss claims – If you don’t remove the hypothecation of your vehicle, if your car is ever stolen or is in an accident that results in the total loss of the car, the claims process can get complicated. The clearance of the total loss claim will go to the lender (the bank) first, and any shortfall needs to be paid by you to close the loan.

To sum up, if you’ve opted for hypothecation, once the loan is paid off it is best to remove the hypothecation status of your car as soon as possible.