Complications in car loans – Ownership & insurance!

By | September 25, 2012

Out of the vast number of car loans that are approved every day across the country there are some loans which become defaulted due to various reasons. Once it is confirmed that the loan repayment is beyond the capacity of the burrower the financier initiates legal action in order to take possession of the vehicle. There are several means by which the car is recovered from the burrower by the financier while staying within the directives and guidelines of the Reserve Bank of India in this regard. However one question still remains unanswered and that is the ownership of the car thereafter and the future disposal of such recovered cars by the financier.

Ownership after Auction of the Repossessed Car


Once the car has been repossessed the financier approaches the court to change ownership permanently as per the terms of the loan agreement. The car is disposed off through an auction process in order to recover the outstanding amount of the loan still unpaid by the burrower.

The process of this auction is well advertised from before so as to attract maximum possible bidders. The outstanding dues are made good from the proceeds of the car auction. The new customer buying the car through the auction now becomes the legal owner of the car. By the statutory provisions of car insurance the insurance cover automatically shifts to the new owner of the vehicle who will subsequently have to renew it on the due date.

However the worries of the defaulted burrower may not be over yet. In case the auction of the car fails to fetch the total amount that is outstanding the courts will direct the original burrower to make good the difference and thereafter obtain a final settlement on the issue. The same is applicable in case the car is auctioned at a higher price than the outstanding amount in which case the banks has to pay back the extra earning to the burrower. However in normal circumstances this is very rarer as the financier will add up penalties to ensure that nothing has to be paid back.

Tips for the New Owner


While buying repossessed cars at auctions may be great idea due to the discounted prices that one may be able to get for the vehicle, there are a few points that the prospective buyer needs to look into.

  • Check the legal validity of the auction as the original burrower may dispute the same at a later stage creating avoidable complications.
  • Check the history of the car for any illegal activities or pending accident cases.
  • Check the actual condition of the car with the help of a professional before the bidding commences.
  • Check the validity and cover of the existing insurance on the car.

A defaulted car loan translates into many complications for the burrower as well as the financier. Hence adequate thought must be pout in regarding the repayment capacity before taking a car loan.

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