13 Procedure of Bank Loan Against Car

Banks also grant advances against the hypothecation of vehicles like trucks, buses, coasters, taxis, water transport, etc. Before allowing a bank loan against car, the following general points are worth noting:

1. The vehicles should normally be new and not second-hand ones. Old and out-of-date models are not accepted as security which, apart from being difficult to sell and with a highly depreciated market value, are also not accepted for coverage of comprehensive risks by the insurance companies/corporations.

2. The borrower should, however, have the necessary knowledge and experience of the transport business.

3. Borrowers should also possess the license and satisfy the banker that the necessary route permit to ply the vehicle on the routes envisaged will be allotted to him. The vehicles should be used as public carriers and registered as such.

4. The bank would assess the economies of the business, viz, the income that will accrue to the borrower as a result of acquiring the transport vehicle after allowing for all expenditure incurred on the operation of the vehicle and to ensure that repayment would be possible within a reasonable period ranging from 2/3 years depending on the type of vehicle purchased and the amount of income generated.

Procedure of bank loan against car
The procedure of bank loan against car

Practice and Procedure of bank loan against car

1. In case of hypothecation of vehicles to be purchased with the bank’s advance it is necessary to obtain two separate agreements, one before purchase and the other after purchase of the vehicle. The first agreement binds the borrower to utilize the loan for the purchase of a particular vehicle and the second agreement binds to hypothecate the vehicle after purchase to the bank. The amount of advance will directly be paid by the bank to the sellers or suppliers of the vehicles.

2. The vehicle will be registered in the joint names of the borrower and the bank with vehicle registration authority and, the bank’s name should be incorporated in the Blue Book evidencing the bank’s interest in the vehicle. The bank is to collect the certified copy of the blue book from the registration authority for preservation with other relative documents.

3. A transfer form in blank signed by the owner of the vehicle if to be obtained, so that the bank may sell it, if necessary.

4. A comprehensive insurance policy should also be obtained in the joint names of the bank and the borrower with a bank clause.

5. Bank’s name should be inscribed on the vehicle with the word “Hypothecated to……Bank.”

6. A suitable margin is to be retained in these advances. Where body-building of the vehicle is necessary, cost or margin thereof, as per terms and conditions of the advance, should be deposited with the bank before allowing advance. The time for completing the body of the vehicle should not exceed 45 days.

7. The banks should also obtain some additional security of the immovable property of sufficient value from the applicant or his guarantor. A personal guarantee of creditworthy persons should also be obtained.

8. A letter of undertaking is to be obtained from the borrower in respect of repayment of the loan by installments within a period not exceeding 2 years.

9. The borrower should produce the vehicle for the bank’s inspection at least once in three/six months.


  • Demand Promissory Note
  • Deed of Hypothecation of the vehicles
  • Letter of guarantee
  • Mortgage of property (if any)
  • Letter of the undertaking.

Hope you find all the necessary information bank loan against car otherwise, you can comment below.

You May Like Also:

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Scroll to Top
Scroll to Top