Hypothecation
A charge on movable property, such as a vehicle, stock or machinery, created in favour of a lender as security for a loan, while the borrower keeps possession of it.
Hypothecation lets you keep using an asset while it secures a loan. A car bought on a loan stays with you, but the lender's hypothecation is recorded, usually on the vehicle's registration certificate, until the loan is repaid. Businesses hypothecate stock and receivables to get working capital.
The law behind it
Section 2(1)(n) of the SARFAESI Act, 2002 defines hypothecation as a charge in or upon movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession, as security for financial assistance. If the borrower defaults, the lender can enforce the charge, including by taking possession, within the limits of the loan agreement and the law.
Hypothecation, pledge and mortgage
- Hypothecation: movable property, borrower keeps possession.
- Pledge: movable property handed over to the lender (for example, a gold loan).
- Mortgage: immovable property such as land or a house.
Removing hypothecation after repayment
- Get a no objection certificate and Form 35 from the lender for a vehicle.
- Apply to the Regional Transport Office (or online through Parivahan) to remove the hypothecation from the registration certificate.
- Inform the insurer so the policy no longer names the lender.
See the vehicle loan agreement and the loan foreclosure NOC request.
Checked against the sources below on 7 November 2026 IST. General information about Indian law, not legal advice for your case.