What Is the Car Loan Foreclosure Process?
It is common to take a car loan to fulfill your dream of buying a new automobile. Taking a loan does not necessarily mean that the borrower does not have enough savings to purchase a car. Self-employed professionals avail of such a loan to save tax. It is quite easy to get car finance. However, if you are planning to foreclose your loan, read on.
What is car loan foreclosure?
Foreclosure or pre-closure of a loan means paying the principal and interest amount before the tenure is over. You plan to foreclose a car loan only when you have surplus funds to repay all the pending dues. Therefore, you can save a significant sum, as you do not have to pay the interest anymore. However, you will have to pay a penalty for car loan foreclosure. Here are the approximate foreclosure charges levied by financial institutions.:
|Foreclosure within the second year of the loan||5%|
|Foreclosure of a car loan after the second year of the loan||3%|
This indicates that you should pre-close your loan during an early phase to save on penalty charges. However, the benefits of foreclosure outweigh the nominal cost.
Car loan foreclosure procedure
To pre-close your loan, you need to:
- Check if your financial institution’s name is mentioned on the Registration Certificate when you had bought the car
- Collect all the post-dated checks, which the lender had given you at the time of loan approval
- Seek the No Objection Certificate from the lender; submit this to your car insurance provider and the Regional Transport Office (RTO); this document is valid for 90 days from the date of issue
- Make sure that you have the original Emission Certificate, tax documents, insurance-related documents, and RC book
- Submit Form 35 to your lender; this will indicate that the hypothecation stands canceled between the financial institution and you, confirming the termination of the agreement
- Carry the original address proof, PAN card, Pollution Under Control (PUC) certificate, car insurance documents, and NOC while going to the RTO. Also, take two copies of Form 35 duly signed by you and the lender during this visit
- Get the hypothecation registered in the RC book canceled at the RTO; you will get an acknowledgment receipt over there; use it as a temporary RC book until you receive the updated RC book
- Submit the copies of the insurance documents, NOC, and RC book to the insurer, who will update the records and give you a letter confirming the cancellation of hypothecation