There are various ways to finance your car’s purchase. You can either pay the entire amount upfront or avail of a finance facility. Since it is an advisable decision to select the latter option, there are few things that you must know when obtaining a finance facility from a lender. When you purchase a car using borrowings from either a financial institution or bank, the vehicle becomes collateral for the lender. To simplify, the car is a surety or guarantee for the lender till the loan is repaid in full. Here comes into the picture the concept of hypothecation – your car’s pledging to obtain the loan.
Now that you know of hypothecation let us understand how new car insurance works 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 name of the lender. 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 till the time 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 car. Not purchase but also when renewing car insurance online with a different insurance company, you shall be asked to provide hypothecation details. Further, this is verified using the registration certificate, which shall be required to be submitted. Thus, the process of adding hypothecation is straightforward and simple.
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. This process involves both the lender as well as the RTO to amend the registration certificate. For this, you need to obtain a no-objection certificate from the lender and submit it to the RTO, after which your vehicle’s registration document is amended. Once it is successfully changed, it is submitted 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?
The removal of hypothecation ensures you’re the owner of the complete owner of the car. Thus, once you’ve repaid the loan, you must first 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 third-party car insurance, you need to 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.