Do you know that buying a car on credit means that you do not own the vehicle until this debt is repaid?  But have you heard about hypothecation in car insurance? Read here everything about hypothecation in car insurance

What is Hypothecation in Car Insurance?

Any individual can buy a car by paying the full amount or by opting for a bank loan. If a bank helps you to buy your car, the car becomes collateral for the bank and the buyer will charge an interest rate for the loan amount, known as hypothecation charges. When an individual pledges his/her car to the bank, until the time the loan amount is fully paid, known as Hypothecation. 

How Hypothecation Works in a Car Insurance 

When an individual takes out a loan to buy a car, the RTO records the funding in the registration certificate, and the certificate shows the buyer's name with details of hypothecation in favor of the bank or a financing institution. As the bank pays a hefty amount to buy the vehicle, the car insurance policy also mentions it and subsequently, the repair compensations are paid to the bank, until the hypothecation is deleted. 

Also Read: Four-Wheeler Break-in Insurance Policy

Hypothecation Vs Mortgage (Meaning)

Hypothecation and Mortgage both are financial terms that differ in their mechanics and implications. Hypothecation is pledging the asset as collateral without transferring ownership to the bank. At the same time, a Mortgage means transferring an interest in real property to the bank as a security for a bank loan. 

Difference between Hypothecation & Mortgage

  Hypothecation Mortgage
Collateral Ownership In this case, the borrower retains the ownership and possession of the asset, while pledging movable assets as collateral.  In a mortgage, the borrower transfers an interest in immovable property to the banks as a security for the loan taken.
Control In the duration of the loan period, the borrower controls and uses the hypothecated asset.   Until the loan is fully paid back, the borrower does not have full ownership but retains possession and use of the property.  
Common Usage Hypothecation is commonly used in movable assets such as vehicles, machinery, or financial securities. Mortgage is majorly used in real estate, comprising residential and commercial property loans.

How to remove hypothecation from RC online?

If you want to remove Hypothecation from your car’s Registration Certificate (RC) online, you need to follow a series of steps as mentioned below: 

  • Obtain a No Objection Certificate (NOC) 
  • Prepare Required Documents
  • Visit the Parivahan Sewa Portal 
  • Apply for Hypothecation Termination 
  • Pay the Required Fee
  • Schedule an Appointment (if required)
  • Submit Original Documents at RTO
  • Receive Updated RC 

This step-by-step process will surely help the car owner in easily removing the Hypothecation from the Registration Certificate (RC) Online, timely and without any hassle. Just make sure your documents are up-to-date and well arranged, to avoid any kind of delays in the process. 

Also Read: Benefits of Adding Roadside Assistance Cover in Car Insurance

How to check the hypothecation status of a vehicle online?

Just by following some simple steps, any individual can check the Hypothecation status of a vehicle Online in India. You can use the Ministry of Road Transport and Highways' official website, Parivahan Sewa, and follow these below-mentioned steps: 

  • Visit the Parivahan Sewa Portal 
  • Navigate to Vehicle-Related Services
  • Select Your State
  • Enter Vehicle Registration Details 
  • Enter Captcha 
  • View Vehicle Details 

As you look into the vehicle details, make sure you check the hypothecation details, owner information, and vehicle information. Just by following these few steps, any individual can check the hypothecation status of a vehicle online

Bottom Line 

For car owners, who have sourced money from banks or any financial institutions to fund their vehicles it is crucial to know about what is hypothecation in car insurance and hypothecation charges. However, as hypothecation secures the interest of the lender till the loan is fully paid back, the borrower needs to know about its implications including the need for the bank’s approval for certain actions involving the vehicle. All the car owners who have gotten their vehicle financed from outside must research how to manage & eventually remove hypothecation in the future, to simplify future transactions. Hypothecation in car insurance may seem to protect the interest of the lender but by staying informed and proactive, the car owner can understand the financial and legal aspects of hypothecation better, promising a hassle-free vehicle ownership experience.


Frequently Asked Questions (FAQs):

On the Registration Certificate (RC), why is hypothecation cited?

It indicates the bank’s financial interest in the vehicle.

In context to hypothecation, what is Form 35?

Form 35 helps apply for the removal of hypothecation from the vehicle's RC.

What should be done to remove hypothecation from the car’s RC?

The car owner has to obtain an NOC and Form 35 from the bank and then he/she can apply at the RTO. 

Are car insurance premiums affected by hypothecation?

No, the car insurance premiums are not directly affected by the hypothecation. 

What is the role of the lender in a car insurance policy?

To protect the interest of the lender, his/her name is also listed as a beneficiary. 

What will happen if the borrower defaults on his car loan?

The lender (Bank or any financial institution) can retain the vehicle from the borrower. 

Does hypothecation apply to both new and used cars? 

Yes, it applies to any type of car that has been financed through a loan from a bank. 

If the car is stolen, then what happens to hypothecation? 

The amount received from the insurance payout will be given to the lender first to cover the balance loan amount. 

Where can a person check if his/her vehicle is under hypothecation?  

Any individual can easily check the RC or the Parivahan Sewa portal for hypothecation details.

Can an individual sell his/her car, if it is under hypothecation?  

It is not possible without the consent of the lender.