If you are planning to buy a car through a bank loan, and are wondering if you can register it with the Land Transportation Office (LTO), the answer is yes, you can. However, do note that when you buy a car through a loan, the bank is technically the owner until you finish paying it off. For this reason, your Certificate of Registration (CR) from the LTO will show the word “encumbered.”
Still quite unsure about it? Let this article break it down for you and explain what happens to your documents and registration when you buy a car under a bank loan.
So, Can I Register a Car Bought Under a Bank Loan?
Yes, you can register or renew the LTO registration of a car bought under a bank loan. However, the bank is recognized as the official owner of the unit and will remain so, regardless of how many times you renew the registration, that is, until you finish paying the loan.
The CR will also have the label “encumbered” until the loan is cleared. This means that the car is still under a loan or mortgage and you can’t sell or transfer it yet. But don’t worry — you can still renew or register it every year as long as you have the photocopy of the Official Receipt (OR) and CR. Once you have made a full payment to the loan, you may then process the encumbrance cancellation and update your CR at the LTO. Only after the encumbrance is cleared can you freely sell, transfer, or modify ownership of your vehicle without any bank restrictions.
What Happens During Registration or Renewal
Even if the car is still under the bank’s name, you can renew the registration yearly with the LTO.
Here’s what you need to know:
- You’ll use the existing documents.
Bring your latest Official Receipt (OR) from the LTO and a photocopy of the Certificate of Registration (CR). You don’t need the original CR yet since the bank keeps it until you finish paying the loan.
- You’ll get a new Official Receipt.
After renewal, LTO will issue a new OR showing your registration is up to date. However, your CR will still list the bank as the owner and show “encumbered.”
- Keep your registration updated.
Most banks require that your registration stays current before they release your car documents later. This helps avoid penalties or problems once the loan is fully paid.
What to Do After Paying Off the Loan
Once you have fully paid your car loan, you become the rightful owner of the vehicle. Then, you will need to do a few things to make it official:
Step 1. Get your original documents from the bank.
Request the original Certificate of Registration (CR) and the release papers from your bank. Some banks may ask you to visit a specific branch, but you can request a transfer to one near you.
Step 2. Cancel the encumbrance.
Go to the Registry of Deeds where the mortgage was first registered. Bring the chattel mortgage documents from your bank. They will stamp or mark it as “Cancelled,” showing that you no longer owe the bank.
Step 3. Update your CR at the LTO.
After the mortgage is cancelled, go to the nearest LTO office to update your records. Ask them to remove the “encumbered” status from your Certificate of Registration.
Note: The process may take time because the LTO will verify your car’s original file from the office where it was first registered.
Video: Can I Sell My Car If It’s Still Under A Bank Loan?
Even if your car is still under a bank loan, it’s your responsibility to make sure its registration stays active and updated. However, it doesn’t mean that you can already freely do whatever you want with it. Only after you’ve paid off the loan and taken the final steps to make your ownership official can your car — and its papers — be truly yours to do as you please, freely and clearly. But, if you are thinking of selling off your car while the bank loan used to finance it is still unpaid, you may check this video below: