Buying cars or other types of motor vehicles through a bank loan or secured loan makes the motor vehicle encumbered. Being labeled as such means it is being used as a collateral for the loan used to pay for things with a hefty acquisition price, like a motor vehicle. In the Land Transportation Office (LTO), it is also known as Chattel Mortgage.

Encumbered motor vehicles or those vehicles under Chattel Mortgage are not “owned” by the buyer. It stay under the ownership of the lender until such time that the loan amount has been paid for in full. Such a condition is signified by the annotation “encumbered” on the LTO Certificate of Registration (CR), creating the Certificate of Registration Encumbered (CRE).

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lto certificate of registration encumbered

What is Certificate of Registration Encumbered (CRE)?

The hefty acquisition costs associated with purchasing a motor vehicle usually calls for a loan through a bank or a lending company. When a car is purchased this way, it becomes a collateral and is technically registered as the property of the bank or the lending company that provided the loan until such time that the loan is repaid, instead of the buyer who took out the loan. Upon registration at the LTO, it is issued a Certificate of Registration Encumbered (CRE) instead of the normal Certificate of Registration (CR).

The Certificate of Registration Encumbered (CRE) is a counterpart of the regular Certificate of Registration (CR) issued upon registration of motor vehicles at the LTO. It is given to car owners whose motor vehicle was purchased by taking out loans. These motor vehicles then serve as the loan collateral, and are technically owned by the lender instead of the buyer, hence the encumbered annotation on the car registration documents. For encumbered motor vehicles, the transfer of ownership will need to be processed once the car loan is paid in full.

Encumbered Car Check: How to Know if a Car is Encumbered?

To check if a car is encumbered, one simply needs to look at the LTO Certificate of Registration (CR). If the portion on the upper left part says “encumbered to” and is filled up with the name of a financial institution, then it means that this particular vehicle is subject to a Chattel Mortgage and was bought using a loan taken out from either a bank or a lending institution.

The encumbered annotation signifies that the lender of the funds used to acquire the vehicle remain as the legal owner of the purchased vehicle until such time that the buyer pays off the loan in full. Once the loan is paid in full, it is the buyer’s responsibility to process the LTO transfer of ownership in order to officially remove the encumbered status of the car and fully transfer its ownership.

What are the Risks of Buying an Encumbered Car?

Buying an encumbered car, otherwise known as the assumption of balance (pasalo) in the Philippines, is quite a common practice. It happens when a buyer of a motor vehicle paid for with a loan from either a bank or a lending company decides to let go and sell the encumbered vehicle before paying it back in full to the lender.

While buying an encumbered car may be more practical budget-wise, it comes with some risks and drawbacks, which includes the following:

When sold, the new buyer will assume the balance on the loan after paying the previous buyer a hefty amount (cash-out) to compensate for the equity or the previous payments made to the loan.
The seller can’t easily put his/her encumbered car up for sale as it requires a written statement from the bank or the lending company (who owns the car) that gave the loan to avoid breaching the loan contract you have signed with the lender.
It is a little risky as the buyer can’t know for sure whether the seller is honest and transparent in regards to the actual state of the car, unless they check it personally.
The buyer will need to confirm with the seller if the car is still subject to financing, and the loan has yet to be paid in full.
There may be legal repercussions as selling a mortgaged property, regardless of whether it’s a house or car, without written consent is punishable by law.
If the new owner fails to make the payments for the loan, the lender may legally repossess the encumbered car even after it was bought by a new owner.

How to Remove the Encumbered Status on Your Car’s Certificate of Registration (CR)?

Removing the encumbered status of the car on the LTO Certificate of Registration (CR) is done at the LTO. It can’t just be any LTO office. It has to be done at the originating LTO branch office (the office where it was originally registered), or the LTO office stated on the Certificate of Registration (CR).

You simply need to prepare the following documents first:

Original and a photocopy of the Loan Contract
Chattel Mortgage Form
Two (2) of the following valid government-issued photo ID from the registered car owner
- Driver’s License
- Philippine Passport
- Professional Regulation Commission (PRC) ID
- SSS ID
- GSIS ID
- BIR ID
- TIN ID
- Voter’s ID
Taxpayer’s Identification Number (TIN)

Once these documents are ready, you may now go to the bank or the lending company who financed your loan to obtain these additional documentary requirements:

Original Certificate of Registration (CR) of the vehicle
Latest original and photocopy of the Official Receipt (OR) of payment for the vehicle
Chattel Mortgage Contract duly-annotated or stamped by the Registry of Deeds (RD)
Original Registered Promissory Note with Chattel Mortgage
Two (2) copies of the Release of Chattel Mortgage
Official Receipt (OR) of payment of the annotation with Registry of Deeds
Motor Vehicle Inspection Report (MVIR) (Motor Vehicle Inspection Report)
Confirmation of CR/OR (CIR-91-137) if issued by other LTO Agency

Note: You will need to have some funds at hand as you will be charged for the notarial fee to get the documents notarized before it can be released. The notarial fee ranges from P300.00 to P400.00.

Once the documentary requirements are ready, you may proceed with the application for annotation and cancellation of chattel mortgage at the designated LTO office.

Important Reminders

For your reference, here are some important things you need to remember:

Make sure to fully pay off your car loan first.
Ensure that your car’s registration is up-to-date, accurate, and that there are no pending penalties.
Maintain frequent contact with the lending company or bank that provided the loan and keep the records straight.
As with any transaction with the LTO, it pays to go early.
You will also need to visit the Registry of Deeds before going to the LTO. Their branches are relatively easy to find, and it’s likely that each city will have a branch.
When visiting the Land Transportation Office, you need to visit the branch indicated on your car’s certificate of registration and not just any LTO branch.
Once the LTO prints out a new CR minus the “encumbered” status, you are now the official owner of the vehicle.

Video: What is CRE?

Learn more about what CRE is for and about by watching this video from Maluya Baby:

Frequently Asked Questions (FAQs) on Encumbered Cars

For your reference, here are some of the most common questions and answers regarding the CRE.

1. If the CR says LTO Diliman District Office, can I process the removal of the encumbered status in any other LTO branch?

No. You can’t process the removal of your motor vehicle’s encumbered annotation anywhere. You need to go to the exact LTO branch indicated on the car’s CRE.

2. What does a “secured car loan” mean?

A secured car loan means a loan taken out from a lending or financial institution. This loan type means that if you miss one or two monthly amortization payments (depending on the financial institution), the lender has the right to “repossess” the property.

3. Can you sell a car with an encumbrance?

Yes. You can sell a car with an encumbered annotation. However, you’ll need to acquire the consent of the financial institution in written form as selling the encumbered car without it is punishable by law.

4. How much will it cost to remove my car’s encumbered status?

Excluding the actual car loan, the total fee to get the CRE converted to CR and remove the encumbered annotation costs around P1,000.00. You’ll also have to consider making multiple copies of many documents, so you will need to allot funds for that as well.

5. Can I process the removal of the “encumbered” status before completely paying off the car loan?

No. You’ll have to finish paying off the car loan first before processing the removal of the encumbered annotation.

Summary

A Certificate of Registration Encumbered (CRE) is a document that proves that a motor vehicle was acquired through a bank or secured loan and that it is owned by the lender instead of the buyer. It is a document that is similar in nature to LTO’s Certificate of Registration (CR), but with the addition of the encumbered annotation that proves that it was acquired with the help of a loan and now serves as a collateral. A CRE can also be converted to a regular CR, but it will require full repayment of the loaned amount before doing so.