A four-wheeler is an essential need today, providing the convenience of comfortable travel. In a developing nation like ours, individuals are resonating with the idea of owning a car. Graduating from a need to a necessity, there are two ways to own a car. You can either buy a brand new car or go for a used one, depending on your priorities. While it may sound just as simple, paying for a car is a different story.
The first thing you need to buy a car; new or second-hand, is substantial money. With savings to back you, you may be able to pay the entire amount cash-down and own the car. Otherwise, you will look for a fitting car loan. NBFCs and banks easily offer car loans for used and new cars. These loans are convenient and you can repay them over a chosen tenure. And as you avail of a car loan, ‘hypothecation’ comes into play. Let’s understand what hypothecation means and how it impacts the ownership of a car.
In simple words, when you finance any vehicle through a loan, you hypothecate the vehicle to the lender. This implies that the vehicle would be owned by the lender until the loan is paid off. Hence, upon defaulting the repayment or monthly instalments, the lender can sell off the vehicle and realize the outstanding amount of the loan.
After a car is bought, it needs to be registered with the Regional Transport Office(RTO). The RTO issues a Registration Certificate(RC) that mentions the owner’s name, details of hypothecation, information of the lender from whom the loan has been availed, etc. Additionally, it would mention that the car is hypothecated to the lender and the date of the respective hypothecation. Even when you get car insurance, the policy acknowledges the hypothecation and mentions it on the policy document.
Usually, details of car hypothecation are pre-included by the insurance company when you get car insurance. Insurers require submission of the RC at the time of buying car insurance. As hypothecation details are provided in the RC book, it gets recorded by the insurance company.
Then while renewing the policy, the policyholder is asked if the loan is running or has been paid off. The insurance company might also check the RC to confirm details of car hypothecation. The renewed policy would contain the hypothecation details of a running loan. You can apply for the removal of the hypothecation details from your insurance policy if the loan has been paid off.
For adding the details of hypothecation to your car at the RTO, you need the following documents:
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