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Old 12th January 2010, 13:50   #1
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Default Buying a car under hypothecation

A colleague is buying a few months old car which is still hypothecated to a bank, and EMI's still being made.
The seller said that he could take the payment, and take care of things from his end, however my colleague is wary, and not too sure, since he is not familiar with the seller.
Is it possible to transfer the loan from the seller to my colleague?
Otherwise, i think the seller has to close the loan by paying it off , for which he will need the money which the buyer, my colleague is not willing to pay up front.
Whattodo?
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Old 12th January 2010, 14:15   #2
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@greenhorn, your friend can simply take the tansfer of car into his name along with the remaining loan.no hassles.just some mandatory paper work
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Old 12th January 2010, 15:22   #3
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Many of the banks, especially the private ones, dont always agree to transfer the loan to the new buyer.
Ideally the buyer should accompany the seller to the bank, ask for the amortization/ loan foreclosure document amount, issue the cheque for the remaining loan amount payable directly to the bank and collect a receipt. There will be a foreclosure penalty of about 4-5% which will be included in the foreclosure amount.
The remainder amount (as per agreed price) that is owing to the seller can be paid by the buyer vide another cheque in return for the car papers, insurance and other papers.
At this time, a receipt for the full agreed price + the vehicle transfer document needs to be signed by the seller and given to the buyer.
The vehicle keys and other things are normally liable to be handed over to the buyer only when the seller has realized payment of the buyer's cheque into his bank account.
Once the loan closure NOC is received by the Seller, the seller needs to give a photocopy of the same to the buyer.
Then the buyer, along with all receipts and papers, needs to make arrangements to transfer the vehicle into his name by submitting everything to the RTO either directly or through a broker.
No shortcuts taken on these procedures will help ensure peace of mind.
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Old 12th January 2010, 15:28   #4
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IMO, lot of paper works and formalities?
It is better the seller close the loan (still he has to pay pre-closure fees) and get NOC from RTO and then transfer to your friends name. Better you all discuss with bank who has financed for this car (the terms and conditions may change bank to bank) to get their opinion and advise on this dealing.
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Old 12th January 2010, 21:03   #5
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Greenhorn, fat chance that the bank will transfer the loan. In 99% of such cases, the seller has to foreclose the loan, pay a penalty (usually 2 - 5%, negotiable with some banks), get an NOC from the financing bank and only then sell the car to the new owner.

Best solution : Have your friend make the payment directly to the finance company. Any balance amount can be paid to the seller. Initiate a joint meeting with your friend, seller and finance company representative. At the time of handing over the cheque, your friend should also procure all the necessary transfer papers from the seller (signed of course) and an acknowledgement from the finance company. List of documents can be found here (ARTICLE: How to sell a *USED* car in India).
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Old 12th January 2010, 21:09   #6
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Quote:
Originally Posted by GTO View Post
Greenhorn, fat chance that the bank will transfer the loan. In 99% of such cases, the seller has to foreclose the loan, pay a penalty (usually 2 - 5%, negotiable with some banks), get an NOC from the financing bank and only then sell the car to the new owner.
I have a doubt. This is a case of foreclosure, so the loan is being paid in full, which means the car is no longer under hypothecation.Then why get an NOC from the bank to sell the car?
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Old 12th January 2010, 21:22   #7
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NOC is a proof that the hypothecation is no longer there, how else will you prove the same?
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Old 12th January 2010, 21:33   #8
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Quote:
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NOC is a proof that the hypothecation is no longer there, how else will you prove the same?
IMHO, NOC is not proof that hypothecation is no longer there, its just a no objection certificate, but no objection to what? You can use receipts to prove that hypothecation was cancelled. And, if im right, you also get a letter stating that the loan has been repaid.
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Old 12th January 2010, 21:39   #9
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Quote:
Originally Posted by rg_chn View Post
IMHO, NOC is not proof that hypothecation is no longer there, its just a no objection certificate, but no objection to what? You can use receipts to prove that hypothecation was cancelled. And, if im right, you also get a letter stating that the loan has been repaid.
No Objection implies no objection to the transfer of ownership.

Receipts / letters etc have limited validity, NOC is a formalised and accepted norm for the same.

Also NOC is addressed to The Transport Authority stating that the bank has no objection to the transfer of the ownership. It is signed by the authorised signatories of the bank whose names and signatures are periodically updated with the RTO whereas a foreclosure receipt is signed by the teller person accepting the cash / cheque from the cust towards foreclosure and this person may / may not be the authorised signatory. The receipt is issued upfront whereas the NOC is issued at a later stage when the loan is closed in bank's systems. For example when the foreclosure is done by cheque, the receipt has limited validity subject to encashment of the cheque. NOC cant be issued upfront in such a case and is issued post the clearance of cheque and closure of loan account.

I work with a consumer finance company hence aware of the details.

Last edited by WanderNomad : 12th January 2010 at 21:42.
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Old 12th January 2010, 21:43   #10
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Quote:
Originally Posted by WanderNomad View Post
No Objection implies no objection to the transfer of ownership.

Receipts / letters etc have limited validity, NOC is a formalised and accepted norm for the same.

Also NOC is addressed to The Transport Authority stating that the bank has no objection to the transfer of the ownership. It is signed by the authorised signatories of the bank whose names and signatures are periodically updated with the RTO whereas a foreclosure receipt is signed by the teller person accepting the cash / cheque from the cust towards foreclosure.

I work with a consumer finance company hence aware of the details.
Thanks for the details. I was under the impression that a receipt or a letter would suffice. So transferring the loan to the buyer is nearly impossible? What if it is a PSU bank? Is it possible then?
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Old 13th January 2010, 02:43   #11
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Quote:
Originally Posted by rg_chn View Post
So transferring the loan to the buyer is nearly impossible? What if it is a PSU bank? Is it possible then?
Have limited knowledge on this so cant comment.
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Old 13th January 2010, 07:46   #12
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This is what happened in my case: I went to the bank with the owner, paid the remaining loan amount, took the receipt of payment and drove back home with the car. In fifteen day's, the owner sent me the NOC which he got from the bank. You would need this NOC to remove the hypothecation when you register the car in your name.
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Old 13th January 2010, 17:48   #13
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Quote:
Originally Posted by rg_chn View Post
I have a doubt. This is a case of foreclosure, so the loan is being paid in full, which means the car is no longer under hypothecation.Then why get an NOC from the bank to sell the car?
Among other things, the NOC is required by the RTO. Without this document, the RTO will not transfer ownership of the car.

Quote:
Originally Posted by rg_chn View Post
So transferring the loan to the buyer is nearly impossible? What if it is a PSU bank? Is it possible then?
Hardly any banks, including PSUs, transfer the loan from one party to another.

Quote:
Originally Posted by dhiman View Post
This is what happened in my case: I went to the bank with the owner, paid the remaining loan amount, took the receipt of payment and drove back home with the car. In fifteen day's, the owner sent me the NOC which he got from the bank. You would need this NOC to remove the hypothecation when you register the car in your name.
Spot on, Dhiman! Thanks for sharing your experience. This is exactly how it should work. Of course, you would have taken the owners signature on the transfer papers at the time of driving away with the car?
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Old 11th April 2010, 17:31   #14
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About Loan transfer:
Banks can issue a new loan for the amount pending unfer the sellers loan to the new buyer for sale of a second hand car at a new interest rate etc.
HDFC bank told me that in case the bank will take care of the hypothecation removal and name transfer of the RC book etc.
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Old 12th April 2010, 12:55   #15
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BenjiRoss, the financing bank (i.e. HDFC) is still not transferring the loan. What they are doing is closing the current loan, and then releasing a fresh (used car) loan to the new owner. This is the same as in any used car transaction, where the current owner forecloses a loan and the new owner opts for one (if he needs the $$$ that is). I doubt HDFC will give any discounts at all. Prevailing used car interest rates will be applicable. The only benefit I foresee is that, turnaround time will be lesser as both transactions (foreclosure + new loan) are from the same bank.
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