What Is Hypothecation in Car Insurance?

Nowadays, owning a car is more of a necessity than a luxury for most people. While purchasing the car, you have multiple options to choose from regarding the payment. Now, you can either pay off the total value of the car right away, or you can avail a bank loan for the same. When you avail of a bank loan for the payment, the car automatically becomes collateral for the bank since it is contributing to paying a part of the value of the car. Simply put, the car becomes a guarantee or surety for the bank until the entire loan amount you have taken is paid off. Therefore, until you pay off the whole loan amount, the ownership of the car remains with the bank. This practice of pledging the car in exchange for a loan is called ‘Hypothecation’. 

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Insuring a Hypothecated Car

Upon purchase of the car, the next important and legally mandated step is to insure it with the best car insurance policy. But, wondering how does the insurance fit in when the ownership of the car belongs to the bank till the loan is paid off? The car purchased through a bank loan will be registered at the local Regional Transport Office (RTO) in your name despite being financed by the bank. Even the Registration Certificate (RC) will bear your name. However, the hypothecation of your car will be noted by the RTO in your RC. The RC will state your car is in favour of the respective bank you have taken the loan from. Similarly, the insurance papers will also be born under your name but in favour of the bank. Furthermore, to complete the car registration process, the following documents are needed:

  • Attested copy of the car owner’s PAN card
  • Address proof of the car owner
  • A valid car insurance policy
  • Original Registration Certificate
  • Form 34, which acts as the application for hypothecation
  • Receipt of the fee paid for the endorsement of hypothecation by the RTO
  • Pollution Under Control Certificate (PUCC)

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Steps to take after completion of the loan

What’s the next step once you have completed repaying the loan amount for the car? Once you have paid the last EMI for your car, first and foremost, make sure to update your car insurance policy by removing the hypothecation from it. To remove hypothecation, you will need to submit the No Objection Certificate (NOC), Form 35 and the revised Registration Certificate to the car insurance company to update your insurance records. Additionally, you must ensure to collect the Payment Receipt and the Repayment Statement from the respective bank as these documents can come in handy in times of need. It is crucial to remove the hypothecation of your vehicle from the car insurance policy to become the complete owner of your dream car! Do not forget to update your RC as well.

Chola MS’s car insurance policy has made protecting your car an even more accessible and more satisfactory task with a simple and hassle-free process. Keeping in mind the needs and wants of you and your family, it ensures to provide personalised umbrella protection for your car!


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