THE KEY TO HASSLE-FREE OWNERSHIP
Your auto loan requires some attention, even after you have paid the last EMI
Auto loans have made buying cars a breeze, but closing the loan can be a bit tedious and requires some care with the paperwork.
FINAL PAYMENT
While paying the final EMI of your loan, check with the lender for dues. If a cheque or ECS (electronic clearing service) bounced during the loan period or a payment was made late, there could be some principal outstanding or interest that needs to be paid. “In case of a bounced cheque/ ECS, one may need to visit the bank to initiate loan closure proceedings by paying the outstanding balance,” says Jose K. Mathew, executive vice president, Federal Bank. “Ensure there are no dues after payment of the final EMI and the loan outstanding has been brought down to zero.”
If you wish to foreclose a loan, the lender will inform you about the total outstanding amount to be settled, which includes outstanding principal, accrued interest and other charges, and a date by which the payment needs to be made. Don’t forget to collect a receipt of the final payment.
GET PAPERS IN ORDER Bringing down your loan dues to zero is not enough. “The biggest mistake a borrower makes is to assume that paying the last EMI completes the loan process. The vehicle’s papers still belong to the lender,” points out Vikram Raichura, co-founder & CEO, Infin8 Capital. When you take an auto loan from a financial institution, the lender gets your car hypothecated with the regional transport office (RTO). The hypothecation is mentioned on the vehicle’s registration certificate (RC). You become the legal owner of your car and can sell your vehicle only after the hypothecation has been removed from the RC.
To remove the hypothecation, you need to collect the no-dues certificate and Form 35 (for termination of hypothecation) from your lender. A no-dues certificate, or ‘closure letter’, is issued to the borrower after s/he has repaid in full and closed the outstanding loan account. Once this letter has been issued, the loan account is closed in the books of the bank.
Form 35 is a declaration of termination of lien or agreement between you and the bank. It mentions that the hypothecation stands cancelled. “Banks or NBFCs (non-banking financial companies) should ideally give you the loan closure documents, such as NoC, within two weeks of payment of the final EMI,” says Rishi Mehra, CEO of wishfin.com. “If you don’t receive the documents within two weeks, approach the lender.” Once you get the NoC, you will need
to apply for removal of hypothecation within 90 days. After that, a duplicate copy of the NoC can be taken from the lender on payment of a fee.
REMOVING HYPOTHECATION
Removal of hypothecation from your vehicle’s RC requires a visit to the RTO. Carry the NoC in original, the RC book or smart card, completed Form 35, insurance papers, pollution under control (PUC) certificate, PAN card and a valid proof of address. The RTO will issue a receipt while admitting your application. The receipt will serve as a temporary RC till the time you receive the updated RC book or smart card.
INFORM THE INSURER Inform your insurer once the hypothecation has been removed. “The loan closure must get updated with the insurer so that you are eligible for insurance if an accident happens,” says Mehra. To update your records with the insurer, submit photocopies of the updated RC book, NoC and insurance documents. The insurer will issue a letter confirming cancellation of hypothecation.
CREDIT REPORT
Check your CIBIL (Credit Information Bureau India Limited) report to ensure it’s error-free. “Sometimes, even after closing a loan, due to slow reporting systems in financial institutions, there is a possibility that your credit report will show the same auto loan as zero outstanding but as an active loan,” says Anil Rego, founder and CEO, Right Horizons. “Depending on the bank, it could take 2-3 months to get the loan closure updated in the CIBIL report,” says Mehra.