Buying a car is an extremely important decision, personally and financially. Personally, a lot of factors come into play. You may have always dreamt of owing a particular make and model. Or, you may want to gift the car to someone you hold dear. Now, let’s look at the financial aspect. While some people may be able to buy a car paying cash upfront, most of us need to apply for a bank loan.  Now as we all know, having a basic four wheeler insurance policy for your car is mandatory in India. When the bank finances your vehicle, you will come across a concept known as ‘hypothecation’ in car insurance. In this article, we aim to help you gain a better understanding of this lesser-known concept.

What is Hypothecation in four Wheeler Insurance?

When a bank finances your vehicle through a car loan, it needs some security as a lender. This security comes in the form of hypothecation. While the car may officially be registered to your name, your vehicle’s registration certificate will mention that the said vehicle is in favour of the bank that financed it. This is known as hypothecation and it helps give a sense of security to the lender’s investment.

Removing Hypothecation

Once your car loan has been paid off, you can now get rid of the hypothecation tag. You need to remove mention of hypothecation in two places – your four wheeler insurance and your registration certificate (RC) at the RTO. Let’s quickly look at the process involved for each of these –

Removal of Hypothecation in four Wheeler Insurance

To remove the hypothecation in your motor insurance policy, you first need to get an NOC from your car loan provider. This NOC can be submitted to your car insurance provider so that they can go ahead and remove the hypothecation tag. Do check with your insurer whether they need to see any other documents too, such as proof of the final EMI paid on your car loan.

Removal of Hypothecation in RC

To get the hypothecation removed from your car’s RC, you need to head over to the RTO’s office and submit the NOC along with your current RC (that mentioned the hypothecation). You may be asked to provide other supporting documents too such as your ID proof, PUC papers, and so on. Do check with your local RTO what formalities are required and make sure to note down all the documents you will need to submit to ensure that everything goes smoothly. Once you submit all the required documentation, you will get issues a fresh RC without the hypothecation.

Without removing the hypothecation status, you cannot sell off your vehicle to a new owner. To avoid facing this hassle (and other issues) do remember to take care of the hypothecation when your car loan is paid in full.

We hope that this blog has helped you understand hypothecation in insurance for vehicles. These days, you can easily buy or even renew your car insurance online, so always keep your coverage active.