There are various ways to finance your car purchase. You can either pay the entire amount upfront or use a finance facility. Since it is an advisable decision to select the latter option, there are a few things that you must know when obtaining a finance facility from a lender. When you purchase a car using borrowings from a financial institution or bank, the vehicle becomes collateral for the lender. To simplify, the car is a surety or guarantee for the lender until the full loan is repaid. The concept of hypothecation comes into the picture – your car’s pledging to obtain the loan.
Now that you know of hypothecation, let us understand howworks in case of hypothecation of your car.
What is hypothecation in car insurance?
When a car is purchased using the loan facility, the vehicle is registered in your name, and the registration certificate bears the lender’s name. Although you are the owner, a record is made with the Regional Transport Office (RTO). Similarly, the car insurance document mentions the name of the financial institution that has financed the purchase. This mention appears in your insurance copy until you amend your registration certificate.
What is the process to add hypothecation to your insurance policy?
Irrespective of the type of car, new or pre-owned, the insurance policy mentions a field to input the details of hypothecation for your vehicle. Not purchase but also when renewing with a different insurance company, you shall be asked to provide hypothecation details. Further, this is verified using the registration certificate, which must be submitted. Thus, the process of adding hypothecation is straightforward.
What is the process to remove the hypothecation from your car insurance policy?
The hypothecation can only be removed after the loan is completely repaid. For this, you need the lender’s pontificate from the lender and submit it to the RTO, after which your vehicle’s registration document is amended. This process involves the lender and the RTO amending the registration certificate. This process consists of the lender and the RTO amending the registration certificate. Once it is successfully changed, it is proposed to your insurer, where the insurance certificate is incorporated with the changes. No transfer or sale is possible without deleting the hypothecation on your vehicle.
Why is it important to remove the hypothecation of your car?
Removing hypothecation ensures you’re the owner of a complete car owner. Thus, once you’ve repaid the loan, you must obtain a NOC from the lender. It will enable you to submit and amend your vehicle’s registration certificate to remove the hypothecation. Whether you have comprehensive or , you must get it amended once the lender’s name is deleted from the registration certificate. So, remember to remove the hypothecation as soon as the repayment is made. Not only your registration certificate needs amendment, but also your car insurance policy to process claims swiftly.