Also, the hypothecation of the car as in the case of the car loan with the banking entity, becomes a hindrance when the owner, even after clearing all the dues towards the loan account, wishes to sell the asset. So, hypothecation of the car with the concerned authority needs to be removed which can be only done by producing the NOC issued by the lending institution.
On the contrary, in a case when the full and final payment has not been made, collateral against the loan hypothecated with the lender is repossesed by the institution. Nonetheless, the loan account which can be deemed as closed by the borrower on account of the repossession of the underlying asset is though not closed.
And a loan account can be considered as closed only when the borrower is in receipt of the closure letter in the form of NOC for the account. As without it chances of banks claiming the loan amount even after repossession of the collateral security are highly likely. The same happens in a case when the bank after repossession of the underlying asset fails to garner a sum equivalent to the principal amount and some percentage of interest referred as base price from the open offer.
So, as the borrower is liable to pay the dues for the sanctioned loan amount, bank has the right to claim the outstanding loan amount from the borrower. The scenario of banks not able to receive the bids for the base price are highly likely in case of the depreciating asset such as a 4-wheeler. And, so the accountability and liability towards the loan account of the borrower will exists as long as dues remains uncleared.
As advised by experts, in case you find it hard to service the loan account, you can sell-off the asset on your own for servicing the debt with the realized amount and for any deficit renegotiate with the bank.
Further in case an individual applies for another loan, the previously held loan that remains unpaid in the records of the bank will also be reflected in the CIBIL credit report.
So, without the receipt of the no dues or no objection certificate from the lending institution, loan accou nt should not be considered as closed. Also, you should not forget to collect all the original documents submitted with the institution for the processing of the loan.