We leave no stones unturned to find the right lender and choose the best available car loan deal. However, when it comes to loan closure, most of us make the mistake of believing that our job is done once the repayment is complete; not realizing that this may keep us away from gaining complete ownership of our vehicle.
While the joy of repaying the last EMI is completely understandable, it’s important for car loan borrowers to take the following steps to avoid facing any issues later on:
Post closure of your car loan, whether on completing repayment or through prepayment, make sure you collect the car loan account statement from the lender. This statement records your entire loan transactions, right from the beginning till the closure of the loan, and is therefore an important document that needs to be obtained once the loan repayment is completed.
Another vital document that needs to be obtained from your lender is the No Due Certificate (NDC) or No Objection Certificate (NOC). NOC certifies that you have repaid the loan fully and no dues are outstanding against the associated loan account. Generally, the lender sends the NOC to the borrower, and ideally a letter to both the RTO (Regional transport Office) and car insurance company, stating that the associated loan has been fully paid off. Along with NOC, lenders also provide form 35 upon closure of car loan account, which helps in removal of hypothecation clause from the RC (Registration Certificate).
When you avail a car loan, your vehicle gets hypothecated to the lender, i.e. the lender possess the right to seize your car in case you default on your loan. And this hypothecation information is recorded by your car insurance company as well. It is important for you to get this information updated in your insurance policy. Upon receiving the NOC, first submit it to your insurance company, who will then issue revised insurance papers with updated insurance policy, with your name as the owner, instead of the lender.
Even if you have completed your car loan repayment, you may not be able to engage in any third-party transaction, such as selling the vehicle, until the hypothecation is removed. Hence, make sure you do not delay in submitting the application for hypothecation removal from the RC at your respective RTO, as the NOC received from the lender is usually valid for up to three months from the date of its issue. You must obtain form 35 from the RTO, as it states removal of hypothecation between you and the lender. You need to submit the NOC, along with the updated insurance policy and other relevant documents such as address proof, to the RTO for verification of documents, post which the RTO will begin the procedure to update the RC. Until you receive your revised RC with your name as owner and a stamp indicating that hypothecation and endorsement have been removed, the RTO would give an acknowledgment receipt, which can meanwhile be used as the RC book.
Lenders are usually quite pro-active in informing the concerned credit bureaus whenever you avail any form of credit, whether it’s a credit card or loan. But, on the contrary, they may not be that prompt when it comes to informing about closure of any loan account. Therefore, once your car loan account is closed, do not forget to request them to inform the credit bureaus, so that the same gets updated in your credit report. Follow up with your lender in case the information is not updated in your credit report. And when the set time-frame given by lender has passed, you can consider placing an online request with the concerned credit bureau to update your records.
(The author is Head of Payment Products, Paisabazaar.com)