Hypothecation on an RC: adding it and removing it after the loan

If you buy a vehicle on a loan, the lender’s interest is recorded on the registration certificate as a hypothecation, hire-purchase or lease entry. The RC then shows that the vehicle is “hypothecated to” the bank or finance company. When the loan is repaid, the entry has to be removed, or you will run into trouble when you sell the vehicle, move state or ask for a duplicate RC.

Apply on the Vahan citizen services portal.

What hypothecation in an RC means

Under section 51 of the Motor Vehicles Act, when a vehicle is held under a hire-purchase, lease or hypothecation agreement, an entry is made in the RC naming the financier. You remain the registered owner and use the vehicle, but the financier has a recorded interest until the loan is closed. Parivahan describes the entry as an endorsement of the agreement in the certificate of registration.

The entry matters because:

• most RC services, such as transfer of ownership, an NOC for another state or a change of address, need the financier’s consent while it is in place;
• the RC card shows the financier’s name;
• the financier can apply to have the RC issued in its name if the loan agreement is terminated for non-payment.

Adding hypothecation: Form 34

For a new vehicle bought on a loan, the hypothecation is normally recorded at the time of registration. Parivahan’s registration page lists Form 34 among the documents in case of a hypothecation endorsement, and the dealer usually files it with the registration.

For an existing vehicle, for example when you take a loan against a car you already own, the owner applies in Form 34, signed by both the registered owner and the financier, with the RC and the fee. In some states the RTO also asks for address proof, insurance, PUC, PAN or Form 60, a chassis and engine pencil print and signature identification.

Steps on Vahan to add hypothecation

The Parivahan FAQ gives the steps:

1. Open the Vahan citizen services portal, enter the registration number and click Proceed.
2. Choose Basic Services.
3. Enter the last five characters of the chassis number and validate.
4. Generate and submit the OTP sent to the mobile number registered on the vehicle.
5. Select Hypothecation Addition.
6. Enter the service details, including the financier.
7. Update the insurance details.
8. Check the fee panel and pay.
9. Upload documents and book an appointment if your state requires them.
10. Keep the receipt. The application then goes to the RTO.

Removing hypothecation after you repay: Form 35

When the loan is fully repaid, the agreement is terminated and the entry is removed. Parivahan’s HP termination page says you apply in Form 35, signed by the registered owner and the financier, with a certificate of due clearance from the financier.

Your bank or finance company issues the NOC and signed Form 35 after the last payment. Check that the forms carry the right registration, chassis and engine numbers, and note any validity date the bank puts on the NOC.

Steps on Vahan to remove hypothecation

Follow the steps for adding a loan entry, but at step 5 select Hypothecation Termination. Upload Form 35 and the financier’s NOC if asked, pay any fee shown, and book an appointment if your state needs one. When the application is approved, a fresh RC is issued without the financier’s name.

S.O. 4353(E) of 16 September 2022 lists both the endorsement and the termination of hire-purchase agreements among the services that can be done online with voluntary Aadhaar authentication.

Continuing hypothecation

The Vahan menu also lists Hypothecation Continuation, with the same verification steps. Ask your financier or RTO whether your case needs it before you apply.

After the loan: a closure checklist

1. Make the last payment and ask the lender for the loan closure letter.
2. Collect the NOC and Form 35, signed by the financier, with the correct registration, chassis and engine numbers.
3. Check the mobile number on the vehicle record so the Vahan OTP reaches you.
4. Apply for Hypothecation Termination on Vahan and upload the documents.
5. Book an appointment only if your state asks for one.
6. Collect the fresh RC and check that the financier’s name is gone.
7. Tell your insurer that the loan is closed, so the policy no longer names the financier.

Keep the closure letter and NOC with your vehicle papers. They are useful if a buyer or another RTO asks how the loan was cleared.

Fees

Central fees are in Rule 81, serial 9, of the Central Motor Vehicles Rules:

Rule 81 says no separate fee is charged for cancelling the agreement or for issuing a fresh RC afterwards, and the ₹200 smart card fee is not charged for a fresh RC after a hire-purchase, lease or hypothecation agreement is cancelled. Fees exclude GST, and states may add service charges, so the Vahan fee panel shows the final amount. Check the central fee with the fee calculator.

If the loan is not repaid

If the owner fails to repay and the financier terminates the agreement, Parivahan’s page says the RC should be issued in the financier’s name. The financier applies for this, in Form 36, under section 51 of the Act. If you are in arrears, speak to your lender before that stage.

Selling a vehicle that still has a loan

You can sell a hypothecated vehicle, but the loan has to be dealt with:

• Repay and remove the entry first. This is the simplest route; the buyer then gets a clean RC.
• Repay at the time of sale. Use the buyer’s payment to close the loan, get the financier’s NOC and Form 35, and apply for termination and transfer.
• Buyer takes over the loan. Only with the financier’s agreement, and the new hypothecation is then recorded for the buyer.

Buyers should not pay in full until they see the financier’s NOC or a clear plan for closing the loan.

Common problems

• Bank NOC expired. If the NOC carries a validity date, apply before it lapses, or ask the bank to reissue it.
• Old mobile number on the RC. The OTP will not reach you; update it on Vahan’s mobile update page.
• Financier has merged or closed. Ask the successor bank for the NOC and Form 35.
• Forgot to remove the entry. Years later, a sale or NOC will stall. Apply as soon as the loan is closed.

Frequently asked questions

How do I remove hypothecation from my RC online?

On Vahan, choose Basic Services, verify with the chassis number and OTP, and select Hypothecation Termination. Upload Form 35 and the bank’s NOC, and book an appointment if your state asks.

What is the fee to remove hypothecation?

Rule 81 charges no separate central fee for cancelling the entry or issuing the fresh RC. Your state may add service charges.

How much does it cost to add hypothecation?

₹500 for a motorcycle, ₹1,500 for a car, three-wheeler or quadricycle, and ₹3,000 for a medium or heavy vehicle, plus GST and any state charges.

Will I get a new RC after removing hypothecation?

Yes. A fresh RC is issued without the financier’s name, and no smart card fee applies for it.

Is the financier’s NOC the same as a vehicle NOC for another state?

No. The financier’s NOC is the bank’s consent or loan closure letter. The NOC for another state is issued by the registering authority in Form 28. You may need both if you move a vehicle that has a loan.

Can I do this without visiting the RTO?

Often, yes. Termination is on the list of services that can be done online with voluntary Aadhaar authentication, but some states still ask you to book an appointment.

Can I transfer or move a vehicle that is hypothecated?

Only with the financier’s consent. For a sale, NOC or change of address, include the financier’s NOC.

Related: vehicle registration, RC transfer, NOC, forms and fees.