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A car loan closure is not an easy task because apart from the bank, there is a requirement to follow up with the RTO also. Car Loans are absolutely great because they help us achieve our dream of owning a car. However, when you buy a car using a Car Loan, you are actually paying interest for a depreciating asset.
1. Loan closure at the end of tenure: When you have made a decision to close a car loan at the end of its tenure, you are expected to write a letter the Bank/NBFC that has provided you the car loan.
2. Loan Closure by Prepayment: It is required to pay the prepayment penalty if a loan is closed before the end of the loan tenure. 2% is the prepayment fee that is generally charged on the outstanding principal. Get all the cancelled post-dated checks that you had issued to the bank/finance company when you took the loan.
How Creditseva Can Help in Closing Your Car Loan
- Creditseva provides with a loan closure tool that helps you close your a car loan in a simple and hassle free manner.
- This real-time loan closure platform will not only help you in getting the best offers from banks to close bad loans but also make the payments to banks directly.
Procedure for Closing a Car Loan
The process involved here is that when a car loan is taken, the car is initially in the name of the bank as it has paid money on your behalf to buy it. The bank’s name is endorsed on the registration certificate (RC). These things have to be taken care of when a car loan is closed.
Step 1: You need to make sure that all the cancelled post-dated checks have been received by you. These were issued to the bank/ when you had taken the loan.
Step 2: Ensure that you have received the No Objection Certificates (NOCs), one addressed to the Regional Transport Office (RTO) where your vehicle has been registered and one addressed to your insurance company. The NOCs are normally valid for a period of 90 days from the date of issue.
Step 3: Take a photocopy of all the above documents and keep them locked at home.
Step 4: You also need to make sure that you have the original and a photocopy of the documents listed below:
- RC Book
- Certificate of Insurance
- Receipt of the lifetime tax paid, and
- Emission Certificate
- It is important to primarily get the hypothecation registered in the RC Book canceled at the Regional Transport Office (RTO) where your car has been registered.
- It would be recommended to ask a reputed driving school because it requires a detailed legal and paperwork. They can do it by taking a certain fee.
Step 6: After canceling the hypothecation in RC book, you need to approach the insurance office. Do remember to take the NOC (addressed to the insurance company), a photocopy of the updated RC book, a photocopy of the insurance certificate, and the originals (in case they need to verify).
The insurance company will update their records and issue a letter stating that the hypothecation has been canceled. Staple this letter to the original insurance certificate
- Get the NOC: The bank needs to provide you with an NOC. This means that the bank has no objection to remove the hypothecation. Note that the bank NOC is generally valid only for 3 months or 90 days. You must submit your application to the RTO, before the NOC’s expiration. It is a time taking process to gather documents from the bank.
- Form 35: This will mention the termination of the hypothecation agreement between you and the bank.
- Cancellation of Hypothecation: You need to get the hypothecation removed at the Regional Transport Office (RTO) where your car has been registered.
- Get hypothecation removed from your insurance: A copy of the NOC and Form 35 should be submitted to the insurance company that covers your car insurance so that the hypothecation is removed from their records too.
Important Documents to be Received While a Car Loan Closure
There are few things that have to be kept in mind to assure the receipt of the two most important documents from the bank when you close your car loan.
- An NOC: No Dues or No Objection certificate from the bank which essentially means that the bank has no objection in removing the hypothecation.
- Form 35: 2 copies of Form 35 that explains the termination of the agreement of lien between you and the bank
Points to be noted: If you have taken a car loan, it is very crucial for you to gather the following documents and then go to the RTO.
- Original Bank NOC
- Original RC
- Two copies of Form 35 that are duly signed by the bank and registered owner
- Attested copy of valid insurance
- Attested copy of valid PUC (Pollution Under Control) certificate
- Attested copy of PAN Card
- Attested copy of Address Proof
- If your current address has changed from the one in RC, you also need Form 33.
Blunders to avoid while you are closing a Car Loan
In the process of closing a car loan, everybody is bound to make blunders. These blunders can be avoided if few precautions are taken. Here we have few pointers that will help you avoid blunders that you could make while closing a car loan.
Step 1: You need to keep a check whether the bank is providing you with an NOC in the duration that has been specified by the bank.
Step 2: It is usually told that while a car loan is in the process of its closure, the bank sends you an NOC and a letter to your RTO, car insurance company briefing them that the loan has been paid off. But, this actually does not happen always, you will be told that it is your responsibility to submit your NOC to your RTO and submit it so that the hypothecation is removed.
Step 3: It is important to provide the NOC to the insurance company from where you have taken the car insurance.
Step 4: Make a note that you need to take a copy of your address proof, copy of insurance papers and NOC form when you are going to the RTO.
Step5: After the above-mentioned documents have been submitted, you will receive an acknowledgment receipt. This receipt can be used as an RC book until you receive the RC Book with a stamp stating that hypothecation and endorsement are removed.
Finally, it can be understood that a car loan can be closed either after the entire tenure is completed or by prepayment of the loan amount. Prior to taking a decision, the borrower should make a detailed comparison of comparing the different features of the different car loans offered by different institutions? In the process of doing this, a borrower needs the help of credit advisory firms to make better as well as informed choices that will result in improving their credit score.
Car Loan Closure FAQs:
1. When does the bank send the NOC Certificate?
Bank usually takes 2-3 weeks to send you the No Objection Certificate (NOC).
2. What is the next step after receiving the NOC?
After receiving the NOC, you need to go to the RTO (Regional Transport Office) to get the hypothecation removed.
3. Till when is the NOC of a car loan considered valid?
The NOC is normally valid for a period of 90 days from the date of issue.
4. What can be done if don’t receive the NOC?
In case, you haven’t received the NOC, you need to remind the bank about it over a phone or an email.
5. How do I obtain a duplicate NOC/Form 35 for a vehicle loan that is closed and repaid completely?
A). There is a need to obtain a duplicate NOC/Form 35 for your car and submit the required documents:
- Request a Duplicate NOC/Form 35
- A copy of the Registration Certificate book and also the Original Registration Certificate book for validation.
B). It is crucial to note that there we not be an issue of the Loan Closure NOC/Form 35 if any of the following conditions apply:
- Copy of RC Book is not submitted
- The same vehicle is encumbered to the Bank for any other loan facility
- A notice from a competent authority stopping the Bank from releasing the hypothecation
- If there are already some over dues, direct or otherwise, in your name
6. After I have repaid the entire loan, how do I remove the hypothecation from the Registration Certificate?
Once your car loan gets closed, you will be provided with the following documents to remove hypothecation from your Registration Certificate:
- No Objection Certificate (NOC) will be given for your Regional Transport Office (RTO) and your Auto Insurance Company
- No Objection Certificate issued by the Bank
- Original Form 35
These above documents are to be submitted at the RTO Office along with a hypothecation removal fee.
7. Till when are the closing documents valid?
The closing documents sent by the bank are valid for 3-6 months from the date of issue unless otherwise stated in the document. If you have closed your Car Loan a while ago, you might need to get a fresh set of documents as your Regional Transport Office (RTO) office might say that old documents are no longer valid.
8. Is there any tax deduction available in the pre-payment of a car loan?
No, there is no tax deduction in the Prepayment of a car loan.
9. Does the car loan appear on the credit report even after it is fully paid?
When your loan is paid off, the lender will contact the credit bureaus to update the account to show that has been fully paid and closed thereon. However, if an account is paid off, it is not does remove from the credit report. Closed and paid accounts remain on the credit report for 10 years from the paid off date if there has been no history of negative payment.
The credit bureaus keep a record of a positive account history than negative account information. This will give you the credit for making timely payments and will help you maintain a positive credit history.
10. What needs to be done when the car I have taken on loan, is stolen?
If your car is stolen, you need to file the claim with the insurance company, because the owner of the RC book is still the lender even though you have paid the loan fully. Therefore you need to accurately close the loan before asking for any claim from the insurer.
11. Is there a possibility that a closed car loan also leads to low credit score?
Yes, there is surely a possibility that your credit report will show the car loan as zero outstanding but as an active loan. Further, if there is a number of active loans on your credit report, it leads to a low credit score.
12. Is there any change in the loan closure process if my current address is different from the one I have mentioned earlier in RC?
If your current address is different from the one in RC, you also need Form 33
- Loan Closure
- Debit Card Closure
- Credit Card Closure
- Secured Credit Card Closure
- Salary Account Closure
- Savings Account Closure
- Redeem Mutual Fund Units
- Close Fixed Deposit