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The process of Used Car Loans is quite different from New Car Loans. Basically, a car is an asset that keeps on depreciating at a year-on-year basis by 20% to 10%. It is also observed that the resale value is lower. The EMI that is paid for a loan is actually an expense and not an investment. So it is always recommended for a borrower to close a loan at the earliest.
- Loan closure at the end of tenure: End of used car tenure of the loan reflects that you reached at the end of EMI’s payment. At the payment of the last EMI, you have to write to your provider of the loan communicating that tenure of the loan has come to an end. Furthermore, you should request loan provider to return your documents.
- Prepayment of Loan Closure: It is required to pay the prepayment penalty if a loan is closed prior to an end of used car loan’s tenure. Generally, fee of 2% is charged by banks on the loan amount that you have to prepay. Get all the cancelled post-dated checks that you had issued to the bank/finance company when you took the loan.
How to Close a Used Car Loan Through Creditseva
The loan tenure of a used car is inversely proportional to its age. The older the car gets, the shorter gets the loan tenure. It is compulsory that the car’s age should not be older than 10 years when you are closing the used car loan. It is seen that most of the banks grant a used car loan for 5 years, whereas NBFCs grant the used car loans for a period of 7 years. It is usually observed that banks gain more if you pay the EMI for the loan, and not when you pay the entire amount for closing the loan. The simple and easiest way to close your car loan is to take the help of services related to credit advisory of Creditseva and stay creditworthy. You just need to sign up, fill in your basic details and receive detailed as well as holistic insights of your credit-related data and thus maintain, improve your credit score in an easy and simple manner.
Types of Used Car Loan Closures
The concept of a Used Car Loan Closure has been categorized into 4 different types which include following
- Regular Closure
- Bad Loan Closure
- Settled Loans Closure
Procedure for Closing Used Car Loan
The process involved here is that when a used 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 used car loan is closed.
You need to make sure that the cancelled post-dated checks have been received by you. These were issued to the bank when you had taken the loan.
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.
Take a photocopy of all the above documents and keep them locked at home.
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 cancelled 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.
After cancelling the hypothecation in RC book, it is required 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 bank has no objection to remove the hypothecation.
- 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 Used 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 while closing your used car loan.
- An NOC: Certificate related to No Objection or No Dues from bank. It implies that the bank does not have any objection in to remove the hypothecation.
- Form 35: Two copies related to Form 35 that explains the termination of the agreement that is between a bank and you.
Points to be noted: If you have taken a used car loan, it is very crucial for you to gather documents that include following and then you have to visit RTO.
- Original Bank No Objection Certificate
- Original Registration Certificate
- Two copies of Form 35 that are duly signed by registered owner and bank
- A copy of attested valid insurance
- A copy of attested and valid PUC (Pollution under Control) certificate
- A copy of attested PAN Card
- A copy of attested Address Proof
- If your current address has changed from the one in Registration Certificate, then you need Form 33.
Things to be Kept in Mind While Closing a Used Car Loan
- You need to write a letter to the bank requesting that you are willing to close the loan before the end of its tenure.
- After you have made the complete payment for the outstanding loan amount, you need to gather a letter from the bank which states that the hypothecation on the car has been removed.
- The above letter and the Original RC should be presented at the RTO office so that the Cancellation Certificate for the Endorsement is received.
- Apart from RC and NOC, other documents like Insurance, Invoice etc. should also be gathered from the bank.
- You need to check for precomputed interest in your used car loan agreement. Ideally, your loan agreement should not include this term. If this term is included in your loan agreement, you will have to continue paying interest on the loan even after you have paid off the loan early.
- It is also important to check for the early payoff penalties for pre-closure of a used car loan. As the lending institutions don’t want to lose the interest on a loan, they prepare a loan agreement in their favour by including prepayment penalties for early closure of the loans.
Used Car Loan Closure FAQs:
1. What if I sell the car when the loan on it is not yet paid off?
If you sell the car when the used car loan is not closed, you will still be the only person liable for the entire value of the loan, even though u have sold it to someone.
2. How long will the car insurance pay for the used car taken on loan by me?
The car insurance will pay only when the car meets with an accident. The insurance company directly pays the service center. If the car owner has expired, the car insurance company will not pay the EMI. It is you who has to pay the EMI if you are intending to keep the car. In case you don’t pay the EMI, the car will be auctioned.
3. Are there are any prepayment charges applicable while pre-closing a used car loan?
It is often seen that pre-payment penalty charges are applicable in pre-closing a used car loan. It is required to calculate the cost of repaying the used car loan after calculating the prepayment charges.
4. Is it true that the loan rates are lower for new cars when compared to used cars?
Yes, it is seen that loan rates are cheaper for new cars than for used cars.
5. Are there any benefits to pre-close a used car loan?
If you are planning to pre-close a used car loan, you can avail certain benefits of doing so. The interest that you are ought to pay on the entire loan amount is less. As you are closing the loan earlier than its tenure, the loan’s outstanding amount is reduced at an early stage. Thus you will be paying less interest.
6. When is the hypothecation on a used car loan removed?
There is a hypothecation on RC if there is a loan taken on a used car. This hypothecation is removed after you close your loan. It is also required to collect the Form 35.
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