Steps to cancel car hypothecation online

Car hypothecation is an important concept to understand when purchasing a vehicle on loan. When you finance your car through a loan, the vehicle is technically owned by the lender until the loan is fully repaid. This process, known as car hypothecation, means the car is "hypothecated" or pledged as collateral to the lender. It’s crucial to know the implications of hypothecation, as the car’s registration certificate will have the lender’s name mentioned on it until the loan is cleared. Once the loan is paid off, it’s essential to cancel the hypothecation by notifying the Regional Transport Office (RTO). Cancelling the hypothecation ensures that the car is officially in your name, free of any financial liens. This not only gives you full ownership but also allows you to sell or transfer the car without any restrictions from the lender. Let's explore what car hypothecation is and how to manage it effectively.

What is car hypothecation?

Car hypothecation refers to the process where a car, purchased through a loan, is used as collateral by the lender until the borrower repays the loan. Essentially, the car remains under the ownership of the bank or financial institution that provides the loan, as it is pledged against the amount borrowed. The lender’s name is included in the car’s registration certificate (RC) as a hypothecatee, which signifies that they have a financial interest in the vehicle until the loan is fully paid off. During this period, the borrower can use the car, but certain limitations apply, such as restrictions on selling or transferring the vehicle. Once the loan is repaid, the borrower must cancel the hypothecation to remove the lender’s name from the RC. This cancellation process involves notifying the Regional Transport Office (RTO) and submitting the required documentation to obtain a new RC in the borrower’s name.

Reasons for cancelling car hypothecation

Here are some important reasons for cancelling car hypothecation after repaying the loan:

• Full ownership: Once the loan is paid, cancelling hypothecation ensures the car is entirely under your name, with no financial obligations tied to it.

• Ease of resale: Without hypothecation, you can sell or transfer ownership of the car without needing lender approval, making the process simpler and faster.

• Improves creditworthiness: Clearing the hypothecation indicates that you have completed your loan obligations, which can positively impact your credit score and future loan eligibility.

• Removes lender’s interest: Cancelling hypothecation ensures the lender no longer has any legal claim to your car, giving you full legal ownership.

• Simplifies future transactions: If you plan to use the car as collateral for another loan or trade-in, having it free of hypothecation makes the process much smoother.

• Mandatory for documentation: Having an updated Registration Certificate (RC) without hypothecation is essential for insurance claims and renewing road taxes.

Step-by-step process to cancel hypothecation

Follow these steps to successfully cancel hypothecation on your car after loan repayment:

• Collect loan closure documents: After completing your car loan, collect the No Objection Certificate (NOC) and Form 35 from the lender. These documents confirm that the loan is cleared.

• Visit the Regional Transport Office (RTO): Take the NOC, Form 35, and other necessary documents, such as your RC, insurance copy, and identity proof, to the RTO where the car is registered.

• Submit documents: Submit all required documents, including the NOC, Form 35, original RC, and a copy of your insurance certificate, to the RTO. You may need to submit a request form for hypothecation removal.

• Pay the applicable fees: The RTO will charge a nominal fee for processing the hypothecation removal. Ensure to pay this fee at the time of submission.

• Wait for processing: The RTO will process your application and issue a new Registration Certificate (RC) without the lender’s name. This may take a few weeks, depending on the RTO’s processing time.

• Collect the new RC: Once the hypothecation is cancelled, collect the updated RC from the RTO or receive it via mail, confirming the car is now fully in your name.

Impact of hypothecation cancellation on your loan

Cancelling car loan hypothecation after completing your car loan has several positive impacts:

• End of lender’s claim: Cancelling hypothecation ensures that the lender no longer has any legal rights or financial claims over your car.

• Full ownership: Once the hypothecation is cancelled, you become the sole owner of the car, with no financial obligations linked to the vehicle.

• Ease of future transactions: You can sell or transfer ownership of the car without involving the lender, making future transactions much simpler.

• Improved credit score: Successfully closing your loan and cancelling hypothecation reflects positively on your credit report, potentially improving your credit score.

• Clear documentation: With the lender’s name removed from the Registration Certificate (RC), all future legal and financial dealings related to the car become straightforward.

• Freedom to modify the car: With no lender interest in the car, you can modify or use the vehicle in any way you choose, as you now have complete ownership.

Fees and charges related to hypothecation cancellation

Fee Type	Description	Approximate Cost
RTO Hypothecation Removal Fee	Processing fee charged by the RTO to remove the hypothecation.	Rs. 100 – Rs. 500
Notary Fee (if applicable)	Charges for notarising documents required by the RTO.	Rs. 50 – Rs. 200
Postal Charges (if applicable)	Fee for receiving the new RC via post from the RTO.	Rs. 50 – Rs. 150
Miscellaneous Charges	Other minor charges (photocopying, form submissions, etc.).	Rs. 20 – Rs. 100

You may also consider getting a part payment car loan.